Indian industrial output showed unexpected strength in August, easing concerns that economic growth was moderating, and analysts said low inflation suggested the central bank could hold interest rates steady this month.
Industrial production in August grew 10.7 per cent from a year earlier, data showed yesterday, up from revised growth of 7.5 per cent in July - its weakest since October 2006 - and comfortably beating market forecasts of 8.7 per cent growth.
Output grew an annual 9.8 per cent in the first five months of fiscal 2007-08 that began in April.
"The numbers are above our expectations and show that concerns about an impending slowdown are greatly exaggerated," said A. Prasanna, an analyst with ICICI Securities.
Separate data showed annual wholesale price inflation at 3.26 per cent at the end of September, not far off a mid-September low of 3.23 per cent, which was its lowest in almost five years. Inflation had hit a two-year high of 6.69 per cent in January.
"Inflation is largely within expectations, but the central bank will be more concerned about global fuel prices and rising food prices," Prasanna said. "Overall, we don't expect any change in the central bank's lending and borrowing rates at the October 30 policy review."
The industrial data showed demand for consumer goods fell, hurt by monetary tightening, but that was more than offset by demand for capital goods and a pick-up in mining activity and electricity generation.
While higher interest rates have hurt domestic demand, exporters have also been hit by a 12.5 per cent rise in the rupee this year. The rupee hit a high of 39.27 per dollar on Thursday, its strongest since March 1998.
Policy makers hope that the festival season, which got under way last month and runs to the end of the year, will help consumer demand rebound. Some banks have cuts rates for consumer loans to push demand for homes, cars and televisions.
The capital goods sector grew an annual 30 per cent in August, compared with 16.6 per cent in the same month a year ago, backing other data that has shown investment remained strong.
The central bank raised rates five times between mid-2006 and March, and has also raised banks' reserve requirements by 200 basis points since December to check credit growth and cool inflationary pressures.
Industrial production accounts for about a fifth of GDP in the world's second-fastest-growing major economy after China. The economy grew 9.4 per cent in 2006-07 and the central bank projects a growth rate of 8.5 per cent in 2007-08. ( Gulf )