NEW DELHI (Reuters) - India’s industrial output growth almost stalled in April compared with a year earlier, reinforcing expectations the central bank will cut rates next week to try to combat a slowdown in the economy.
The government data showed that output rose just 0.1 percent in April, lower than expectations in a Reuters poll for a 1.7 percent increase. Output fell in March from a year earlier by 3.5 percent.
“The data clearly points to industrial growth being extremely weak,” said Abheek Barua, chief economist at HDFC Bank in New Delhi. “It is in clear need of monetary as well as fiscal support.”
High inflation and interest rates, a lack of government initiative and the euro area debt crisis have weighed on Asia’s third-biggest economy for more than a year. Annual GDP growth hit its weakest pace in nine years in the first three months of calendar 2012.
Market reaction to the data was muted. The rupee was changing hands around 56 per dollar, little changed from before the data.
The yield on benchmark 10-year bonds was flat at 8.31 percent compared with pre-data levels and stocks pared mild losses to trade flat on the day.
The slump in January-March GDP growth to 5.3 percent sparked alarm in industry and calls for the government and the central bank to take action to revive the fortunes of an economy that was expanding closer to 10 percent a year before the global financial crisis.
That has spurred expectations the Reserve Bank of India will cut its repo rate by 25 basis points to 7.75 percent next Monday, adding to a 50 bps cut in April.
However, those expectations will be further molded on Thursday by May wholesale inflation data.
Finance Minister Pranab Mukherjee forecast on Monday a turnaround in India’s growth prospects after Standard & Poor’s said India could be the first BRIC member to lose its investment-grade credit status.
“Slowing GDP growth and political roadblocks to economic policymaking are just some of the factors pushing up the risk that India could lose its investment-grade rating,” S&P said.
Reporting by Rajesh Kumar Singh: Writing by Neil Fullick; Editing by Dean Yates