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High interest rates seen slowing growth in industrial output

High interest rates seen slowing growth in industrial output
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First Published: Fri, Jan 11 2008. 12 46 AM IST

Updated: Fri, Jan 11 2008. 12 46 AM IST
New Delhi: India’s industrial production growth probably slowed in November as decade-high interest rates cut demand for factory-made goods.
Production at factories, utilities and mines rose 7.3% from a year earlier after gaining 11.8% in October, according to the median forecast of 14 economists in a Bloomberg survey. The Central Statistical Organization’s report is due Friday.
While industrial production is slowing, the projected increase in November exceeds the average for the past decade and is more than three times the figure in the US, the world’s largest economy. Prime Minister Manmohan Singh this week formed a panel to suggest measures to boost Indian manufacturing.
“The central bank should start cutting interest rates,” said N.R. Bhanumurthy, an economist at the Institute of Economic Growth in New Delhi. “Demand has weakened and inflation is under control.”
The Reserve Bank of India (RBI) has raised interest rates nine times since 2004 to contain inflation below its target of 5%. As a result, State Bank of India charges 12.75% interest on loans to its best customers, the most since 1999. Inflation was 3.5% in the week ended 22 December, down from 6.7% at the start of 2007.
RBI is scheduled to set interest rates at its next monetary-policy meeting on 29 January.
India’s $906 billion (Rs35.6 trillion) economy expanded 8.9% in the three months to 30 September from a year earlier, the weakest pace in three quarters. Manufacturing increased the least in almost two years. Growth in Asia’s third largest economy is expected to ease to 8.4% this year from 9% last year and 9.4% in 2006, the World Bank said in a report Wednesday.
Cement production in November rose 4.5% from a year earlier after growth of 7% in October. ACC Ltd, India’s biggest cement maker by capacity, said sales declined 6% last month. Growth in passenger car sales halved to 8.8% in December. ABN Amro Bank NV.’s purchasing managers’ index for India fell to 60.9 in November from 61.7 in October, suggesting a slowdown in manufacturing growth.
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First Published: Fri, Jan 11 2008. 12 46 AM IST