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Expert views on May industrial output

Source : REUTERS
Last Updated: Thu, Jul 12, 2012 06:56 hrs
A labourer arranges iron pipes at a market in the southern Indian city of Hyderabad

India's industrial production grew at a higher-than-expected pace of 2.4 percent in May driven by manufacturing output, government data showed on Thursday.

Analysts had expected a rise of 1.8 percent in May output, a Reuters poll showed. The May figure compares with revised figures that showed an annual contraction of 0.9 percent a month ago.

Along with June wholesale price inflation, scheduled for Monday, the notoriously volatile IIP data could be instrumental for the Reserve Bank of India to take a call on the rate cuts at a policy review on July 31.

COMMENTARY

LEIF ESKESEN, CHIEF ECONOMIST FOR INDIA AND ASEAN, HSBC, SINGAPORE

"Today's factory output number is unlikely to change the stance of the Reserve Bank of India one way or the other. Both global and domestic parameters has largely remained same since its last meeting.

"The room to cut rates is limited because the slowdown is supply-driven, and it will not help much to ease policy rates. Implementation of supply-side reform measures are key for inflation-growth trade-off."

RADHIKA RAO, ECONOMIST, FORECAST PTE, SINGAPORE

"May industrial production marks some improvement from month and year ago, though reliability of the series remains in doubt after modest growth in April's output was revised down to -0.9 percent. Notwithstanding the volatility, we expect elevated input prices and still high borrowing costs to impinge on manufacturing activity in the year, with the latter unlikely to receive a significant boost until investment sentiments and demand conditions recover in a sustained fashion. Policy direction meanwhile will be dictated by June WPI and above 7.0 percent print will squash rate-cut hopes at the end-July review."

DARIUSZ KOWALCZYK, SENIOR ECONOMIST AND STRATEGIST, CREDIT AGRICOLE CIB, HONG KONG

"This is the second straight monthly improvement in the data series. While overall level remains subdued, the direction of changes is positive and gives some hope of growth rebounding in June quarter and beyond from the 9-year low hit in March quarter.

"This is modestly positive for the INR, although better growth may delay further rate cuts from the RBI. We expect the INR to edge higher on the data, and the INR OIS to move a bit up as well, especially at the short end, leading to bear-flattening of the curve."

BACKGROUND

- India's economy expanded 5.3 percent in the March quarter, its slowest pace in nine years, on a combination of mounting global uncertainties, muddled policies, high inflation and steep interest rates at home.

- Factories stepped up production and hired workers in June at the fastest rate in more than two years, a business survey showed.

- Car sales in June grew 8.3 percent from a year earlier, but were the lowest in numbers since October last year, forcing the auto industry to lower the sales target for the current fiscal year.

- Headline inflation accelerated in May to 7.55 percent as both food and fuel prices picked up. Consumer price inflation, which is an indicator of retail price rises, was unchanged at 10.36 percent in May.

- The monsoon advanced into the main grain producing states of Punjab and Haryana and rains have picked up in soybean areas of central India, marking some progress after last week's halt. Inadequate rainfall hits farm productivity and pushes up food prices.




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