Industrial production growth probably slowed for a third month in June as higher interest rates curbed consumer spending, forcing manufacturers to reduce output.
Production at factories, utilities and mines rose 11% from a year earlier, following an 11.1% gain in May, according to the median forecast of 15 economists in a Bloomberg survey. The Central Statistical Organisation’s report is due in New Delhi on Friday. Weaker demand may prompt the Reserve Bank of India (RBI) to keep its key interest rate unchanged until the end of the fiscal year on 31 March. RBI’s move to allow the rupee to gain to a nine-year high has also made exports less competitive.
“Demand has moderated with some segments such as automobiles announcing production cuts,” said Harish Menon, an economist at ING Vysya Bank Ltd in Mumbai. “The gain in the rupee has also hurt external demand, so we expect more moderation in industrial output going forward.”
The rupee closed unchanged on Thursday at 40.52/53 against the US dollar, while the yield on the benchmark 7.49% bond rose eight basis points to 7.99%. The BSE Sensex fell 1.36% to 15100.15.
Business confidence fell for a second straight quarter because of higher interest rates and a rising currency, the National Council of Applied Economic Research (Ncaer) said. The business confidence index, based on responses from 493 companies, declined to 137.9 in the current quarter ending on 30 September, from 151.3 in the preceding quarter, according to Ncaer.
Manufacturing expanded at a slower pace in July, ABN Amro Bank NV had said on 1 August on the basis of its purchasing managers’ index, which declined to the lowest level in more than two years.
Hero Honda Ltd and Bajaj Auto Ltd have maintained their production cuts announced in June as consumers trimmed purchases because of higher borrowing costs. “Demand is starting to slow across the industry,” said Anil Gupta, joint managing director at Havell’s India Ltd, India’s biggest maker of switches for households. “Demand for housing is clearly lowering momentum.”
Easing demand helped the benchmark wholesale price index to slow to a gain of 4.36% in the week ended 21 July from a year earlier, staying below the RBI’s 5% inflation target ceiling for the eighth straight week. Loans to consumers and companies grew 23.6% in the year to 20 July, compared with a 31.7% gain in the same period last year, RBI said on 3 August.
Manish Modi in New Delhi contributed to this story.