INSTANT VIEW 4-India's May industrial output up 2.4 pct y/y

(Adds comments, details)
NEW DELHI, July 12 (Reuters) - 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.

KEY POINTS:
------------------------------------------------------
annual growth in pct*
May 2012 Apr 2012 May 2011
INDUSTRIAL OUTPUT +2.4 -0.9 +6.2
Consumer goods +4.3 +3.7 +7.2
Consumer durables +9.3 +5.2 +5.1
Consumer non-durables +0.1 +2.5 +9.0
Capital goods -7.7 -19.6 +6.2
Mining -0.9 -3.2 +1.8
Electricity +5.9 +4.6 +10.3
Manufacturing +2.5 -1.2 +6.3

(Based on the new series with 2004/05 as base year)
---------------------------------------------------------

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."

SURESH KUMAR RAMANATHAN, HEAD OF REGIONAL INTEREST RATES AND
FX STRATEGY, CIMB, KUALA LUMPUR
"Trend is still downwards. April number revision was not
expected, but it entrenched the view of a slowing growth for
India in the June quarter. Would this affect rates? I doubt it,
but June numbers will be crucial for rate deliberation. For now
we have not priced in any rate cut".

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."

RAHUL BAJORIA, REGIONAL ECONOMIST, BARCLAYS, SINGAPORE
"It looks like production momentum is stabilising but
consolidating at a very low level which won't give the central
bank a lot of comfort. Also with growth momentum not panning out
well, rural consumption will get affected, and at that point it
will become difficult for RBI to justify rationality for not
cutting rates.
"There is a downward risk to our growth projection of 6.7
percent, which was revised in June from 7 percent, if monsoons
are not good. We expect RBI to cut rates by another 100 basis
points from now until March as growth is weak and core inflation
below 5 percent, even though headline inflation will remain
sticky."

SANJAY MATHUR, HEAD OF RESEARCH AND STRATEGY, ROYAL BANK OF
SCOTLAND, SINGAPORE
"Today's number is better than last month's but it does not
signal that we are in the middle of an upturn. Unambiguously, it
is a weak number for a domestic demand-driven economy like
India. With the Reserve Bank of India looking at fighting
inflation, it is likely to hold its rates steady in the July
review."

A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP
LTD, MUMBAI
"More than the May number, the revision in April number is a
bigger problem. It seems growth is weak, but we can be
cautiously optimistic. Overall I think the Q1 (April-June) GDP
number will be comparable to Q4 (Jan-March), which means that
slowing trend is still there, though on isolation the May IIP
number may look better.
"We hold on to our view that after this number RBI will keep
rates unchanged and will wait for headline inflation to come
down before cutting rates. I think the April number is an
aberration as I don't think there is a contraction in the
economy."

ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI
"We will have to wait for some more time for a rate cut from
the Reserve Bank of India. The first rate cut could only be in
the first quarter of 2013, because inflation is likely to remain
high for the rest of 2012. Inflation above 7 percent is very
uncomfortable for the RBI. Monday's inflation print will be
closely watched.
"But we will need to keep a close eye on the reforms being
initiated by the government."

ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK, NEW DELHI
"Industrial growth is still very sluggish and the April
revision suggests that there is a prospect of downward revision
in May number as well. The first half (April-September) looks
pretty grim at 2-3 percent IIP growth at best and second half
may see some better IIP number on base effect.
"Even sequentially, industrial output is below trend for
last four months. But with RBI saying that inflation is high
despite economy operating at below potential growth and given
what they articulated in the last policy, it is unlikely that
RBI will be influenced by a lower IIP number. I think RBI will
keep rates on hold until July, if not until September as
headline inflation will be on an uptrend until then."

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
"Growth figure for IIP at 2.4 percent is still dismal and
strongly reflects the weaknesses in investment cycle.
Unfortunately inflation is too high to expect the RBI to reduce
the policy rates. Investors are keenly awaiting investment
boosting measures from the North Block."

SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL,
MUMBAI
"The growth in intermediate goods, both year-on-year and on
a sequential basis might have led to a softer recovery in the
production activities. However, the monsoon sluggishness is
expected to keep the growth activities subdued until August.
"What is quite worrying is the April revised data reiterated
the slowdown impact on the economy and calls for a fast track
action from the central government to cheer up the investment
flows. The 10-year new G-Sec saw a 1 basis point down move post
data announcement in anticipation of a rate cut from the RBI
given the downward revision in the previous month's output data.
However, the WPI data would be the key determinant to take a
comprehensive decision while framing the July 31 policy."

SANDIP SABHARWAL, CEO, PORTFOLIO MANAGEMENT SERVICES,
PRABHUDAS LILLADHER, MUMBAI
"This is extremely subdued growth and can at best translate
into a GDP growth of 6 percent given the slowdown in agriculture
as well.
"Food inflation is still at elevated levels and there is
little expectations that it will come out because of monsoon. It
is more of a structural issue."

MARKET REACTION
The benchmark 10-year bond yield edged down
1 basis point to 8.12 percent following the data.
The partially convertible rupee briefly gained to
the day's high of 55.53 per dollar before again weakening on the
day. The 30-share BSE index, which was down more than 1
percent beforehand, was unmoved.

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.
(Reporting by India Treasury Team; Editing by Ranjit
Gangadharan)