India’s Industrial Production Grows at Slowest Pace in Two Years.

Nov. 11 (Bloomberg) -- India’s industrial production grew in September at the slowest pace in two years following record interest-rate increases and as the global recovery faltered.

Output at factories, utilities and mines increased 1.9 percent from a year earlier after a revised 3.6 percent gain in August, the Central Statistical Office said in a statement in New Delhi today. The median of 27 estimates in a Bloomberg News survey was for a 3.5 percent gain.

The Reserve Bank of India last month signaled it’s nearing the end of monetary tightening after it raised rates for the 13th time since mid-March 2010 to damp inflation. Asian nations from Indonesia to South Korea are either cutting rates or keeping borrowing costs on hold to shield expansion as Europe’s debt crisis hurts the world economy.

“Higher interest rates are beginning to slow economic activity amid global uncertainty,” Jay Shankar, Mumbai-based chief economist at Religare Capital Markets Ltd., said before the report. “The central bank is probably done with its rate tightening.”

The yield on the 8.79 percent government security due November 2021 climbed five basis points, or 0.05 percentage point, to 8.95 percent at 10:30 a.m. in Mumbai. The BSE India Sensitive Index declined 0.9 percent. The rupee was little changed at 50.22 per dollar. The currency has weakened more than 10 percent so far this year.

The Reserve Bank of India said last month that the rupee’s weakness risks fueling inflation, which has stayed above 9 percent since the start of December.

‘Relatively Low’

The central bank said on Oct. 25 that its monetary tightening will help curb inflation and that the likelihood of a rate action in the December policy meeting is “relatively low.”

The Reserve Bank predicted India’s economy will expand 7.6 percent in the year ending March 31, lower than the 8 percent it estimated earlier. The central bank expects inflation to ease to 7 percent by March 31.

India’s benchmark wholesale-price inflation rate probably slowed to 9.64 percent in October from 9.72 percent in the previous month, the median of 12 estimates in a Bloomberg News survey showed. The commerce ministry will release the data on Nov. 14.

Governor Duvvuri Subbarao has increased the central bank’s repurchase rate by 375 basis points since the start of 2010. That’s the fastest round of increases since the central bank was established in 1935, Bloomberg data show. The repurchase rate is 8.5 percent.

Consumer Demand

As a result, consumer demand is showing signs of waning.

Steel production by companies including Tata Steel Ltd., India’s largest producer, grew 6.6 percent in September from a year earlier, compared with an 8 percent gain in August, the commerce ministry said Oct. 31. Cement production growth slowed to 0.9 percent from 7.2 percent during the period, the statement showed.

India’s merchandise exports grew 10.8 percent in October, the slowest pace in two years, as waning demand in Europe cut orders, Commerce Secretary Rahul Khullar told reporters in New Delhi on Nov. 8.

Subbarao said last month that the central bank gave the guidance on rates to help boost investment.

India’s inflation will start to decline from December and ease to 7 percent by March before moderating further in the first half of the new fiscal year starting April 1, according to the central bank. Beyond December, “if the inflation trajectory conforms to projections, further rate hikes may not be warranted,” the Reserve Bank said Oct. 25.

Source : businessweek.com