India industrial output rebounds easing growth concerns

Worker at a factory in India India's manufacturing sector is a key driver of its economic growth India's industrial production rebounded in November, easing concerns that monetary tightening was hurting growth. Factory output grew 5.9% in November from a year earlier, a sharp turnaround from a 4.7% decline in October. India's central bank has raised its key interest rate 13 times in the past two years in an attempt to control rising consumer prices. There have been fears that the high cost of borrowing was hurting the manufacturing sector. Analysts said the latest numbers may see the central bank continue with its policy to keep consumer prices in check. "I think the Reserve Bank of India (RBI) will take comfort from the industrial output number as it shows growth is shaky but not negative," said Madan Sabnavis of CARE Ratings in Mumbai. "It also allows the central bank to continue to focus on inflation." Policy change? In December, the RBI had left the key interest rate unchanged at 8.5% amid concerns of a weakness in the economy. The RBI is unlikely to read too much into the data. No hasty shift in policy bias is likely in this regard, with the first of the [interest rate] cuts expected in the second quarter of 2012” End Quote Radhika Rao Forecast Pte Ltd At the same time, in an exclusive interview with the BBC, Duvvuri Subbarao, the governor of RBI, said the central bank may reverse its policy and shift its focus towards boosting growth. However, analysts said that any reversal in interest rate policy would depend on consumer price growth. "For any kind of RBI action, the December inflation numbers will be crucial," said N Bhanumurthy of National Institute of Public Finance and Policy. India's inflation rate fell in November, but still continues to remain a key issue for the central bank. The wholesale price index, the main gauge of consumer prices in the country, rose at an annual rate of 9.1% during the month, down from 9.7% in the previous month. To make matters more complicated for the central bank, the Indian rupee has fallen 15% against the US dollar in the past 12 months, making imports more expensive. Analysts said the volatility in the Indian currency may also prevent the central bank from easing its policies immediately. The RBI is unlikely to read too much into the data," said Radhika Rao of Forecast Pte Ltd. "No hasty shift in policy bias is likely in this regard, with the first of the [interest rate] cuts expected in the second quarter of 2012."