* Feb industrial output up 3.6 pct y/y, below f'cast
* Feb manufacturing growth 3.5 pct y/y
* Capital goods sector continues contraction in Feb
* Cbank seen hiking rates on May 3 on inflation woes
(Adds analysts' quotes, details)
By C.J. Kuncheria and Manoj Kumar
NEW DELHI, April 11 India's industrial output
growth slowed unexpectedly in February, adding to evidence that
its economic expansion may be moderating, but a hawkish central
bank is still expected to raise interest rates next month as it
struggles to contain stubbornly high inflation.
The weaker-than-forecast reading of annual 3.6 percent
growth in production at factories, mines and utilities compared
with the median forecast for a 5.2 percent rise in a Reuters'
poll, and comes on the heels of a dip in services output in
Several analysts have trimmed their forecasts for Asia's
third-largest economy and have warned that high inflation
combined with a tight monetary policy could drag on growth.
The Reserve Bank of India (RBI) has its eyes firmly on
inflation, which at 8.31 percent in February was considerably
above the central bank's comfort level, and has indicated it
would tighten policy further during the year.
"Weaker-than-expected industrial production is unlikely to
throw a spanner in the RBI's way, with a 25 basis points hike at
the May meeting a near certainty as inflation remains the main
policy driver at this juncture," said Radhika Rao, an economist
at Forecast Pte in Singapore, referring to the central bank's
next policy review on May 3.
"Nonetheless, successive softer IP prints does warrant some
attention, especially as capital goods stay under weather,
while consumer durables maintain steady growth."
February's output growth data was lower than an upwardly
revised 3.9 percent growth a month earlier.
The decline was led by a contraction in capital goods
output, which shrunk 1 8.4 percent in February,
compared with an expansion of nearly 47 percent in the
prior-year period, point ing to
sluggish investment spending .
Manufacturing output, which makes up 80 percent of the
overall output, grew an annual 3.5 percent during the month,
compared with 16 percent a year ago.
The most-traded 7.80 percent 2021 bond yield
dropped 1 basis point to 7.86 percent after the factory output
data. The main share index extended losses and was down
0.6 percent from 0.4 percent before the data.
The partially convertible rupee too extended losses
marginally to 44.21 per dollar from 44.19.
"The data confirms some slowdown of growth momentum in the
first quarter, and will cap the Indian rupees's gains," Dariusz
Kowalczyk, senior economist and strategist at Credit
Agricole in Hong Kong.
Last week, a HSBC survey showed growth in
India's service sector slowed in March from February's
blistering seven-month high as new business growth moderated
slightly, while price pressures, particularly wages, continued
to rise. [ID:nBMA009650]
India's domestically driven economy, is expected to
have grown 8.6 percent in the fiscal year that ended on March 31
and the government has forecast it to grow 9 percent in the
current fiscal year.
But high inflation is crimping
domestic demand and e ight
interest rate hikes by the central
bank since March 2010 have begun
to hurt demand and
investment without curbing inflation.
" We remain particularly nervous about the
impact of the monetary tightening on the interest rate sensitive
parts of the economy, while the jump in oil and other input
prices is also likely to take its toll on profit
margins ," Credit Suisse said in a note on
The investment bank and others have trimmed their outlook on
India on such concerns. [ID:nSGE72A05K]
(Writing by Rajesh Kumar Singh; Editing by Kim Coghill)