Rate hike likely as India growth cools
Source: Bloomberg News |
June 1, 2011, Wednesday
|
Print Edition
Print Edition
INDIA'S economy grew at the slowest pace in five quarters as manufacturing and services cooled, a moderation that has yet to curb pressure for more increases in interest rates to damp inflation.
Gross domestic product rose 7.8 percent in the three months ending on March 31 from a year earlier, after a revised 8.3 percent gain in the previous quarter, the Central Statistical Office said in a statement in New Delhi yesterday. That's the slowest pace in five quarters. The median of 22 predictions in a Bloomberg News survey was for an 8.1 percent advance.
India's inflation rate is the fastest after Russia among major emerging economies, and the Reserve Bank of India this month signaled further tightening as it raised rates for the ninth time since March 2010. The International Monetary Fund, Goldman Sachs Group Inc and Credit Suisse Group AG project lower expansion in India this year.
"The central bank will need to slow growth further so that inflation can be brought under control," said Shubhada Rao, chief economist at Mumbai-based Yes Bank Ltd. "The high level of inflation is the biggest risk to the economy."
She expects the central bank to raise rates by half a percentage point by the end of September.
The Bombay Stock Exchange's Sensitive Index rose 1.5 percent at the close yesterday after paring gains to 0.5 percent just after the report.
Reserve Bank Governor Duvvuri Subbarao increased the repurchase rate by half a percentage point to 7.25 percent on May 3, the biggest move since July 2008, and indicated he is ready to step up the battle against inflation even at the risk of restraining growth. While inflation slowed to 8.66 percent in April from 9.02 percent in March, the central bank said the rate probably won't decline much further until September.
Higher borrowing costs will slow India's economic expansion and help ease inflation to 6 percent "with an upward bias" by March 31, 2012, Subbarao said this month.
India's economy may expand "around 8 percent" in the year through March, he said. It grew 8.5 percent in the previous 12 months.
Manufacturing rose 5.5 percent in the three months through March from a year earlier, compared with a 6 percent gain in the previous quarter, yesterday's report showed. Finance and insurance services grew 9 percent after a 10.8 percent jump in the previous quarter. Farm output rose 7.5 percent while mining advanced 1.7 percent.
In China, the central bank has hiked rates four times since mid-October. The Bank of Korea held off from raising borrowing costs for two months after increases of a quarter point each in January and March.
Gross domestic product rose 7.8 percent in the three months ending on March 31 from a year earlier, after a revised 8.3 percent gain in the previous quarter, the Central Statistical Office said in a statement in New Delhi yesterday. That's the slowest pace in five quarters. The median of 22 predictions in a Bloomberg News survey was for an 8.1 percent advance.
India's inflation rate is the fastest after Russia among major emerging economies, and the Reserve Bank of India this month signaled further tightening as it raised rates for the ninth time since March 2010. The International Monetary Fund, Goldman Sachs Group Inc and Credit Suisse Group AG project lower expansion in India this year.
"The central bank will need to slow growth further so that inflation can be brought under control," said Shubhada Rao, chief economist at Mumbai-based Yes Bank Ltd. "The high level of inflation is the biggest risk to the economy."
She expects the central bank to raise rates by half a percentage point by the end of September.
The Bombay Stock Exchange's Sensitive Index rose 1.5 percent at the close yesterday after paring gains to 0.5 percent just after the report.
Reserve Bank Governor Duvvuri Subbarao increased the repurchase rate by half a percentage point to 7.25 percent on May 3, the biggest move since July 2008, and indicated he is ready to step up the battle against inflation even at the risk of restraining growth. While inflation slowed to 8.66 percent in April from 9.02 percent in March, the central bank said the rate probably won't decline much further until September.
Higher borrowing costs will slow India's economic expansion and help ease inflation to 6 percent "with an upward bias" by March 31, 2012, Subbarao said this month.
India's economy may expand "around 8 percent" in the year through March, he said. It grew 8.5 percent in the previous 12 months.
Manufacturing rose 5.5 percent in the three months through March from a year earlier, compared with a 6 percent gain in the previous quarter, yesterday's report showed. Finance and insurance services grew 9 percent after a 10.8 percent jump in the previous quarter. Farm output rose 7.5 percent while mining advanced 1.7 percent.
In China, the central bank has hiked rates four times since mid-October. The Bank of Korea held off from raising borrowing costs for two months after increases of a quarter point each in January and March.
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