By Cherian Thomas, Bloomberg
NEW DELHI: India’s industrial production grew faster than expected in January, putting pressure on the central bank to increase interest rates for the second time this year to curb inflation.
Production at factories, utilities and mines rose 10.9% from a year earlier, following December’s revised 12.5% gain, the Central Statistical Organisation said on 12 March. Analysts expected a 10.1% increase.
Rising consumer demand fuelled by unprecedented bank lending and higher salaries has pushed inflation to near a two- year high. Maruti Udyog Ltd, India’s biggest carmaker, last month posted its fastest sales growth in three years.
“The production data suggests consumer demand continues to be strong,” said N R Bhanumurthy, an economist at Institute of Economic Growth in New Delhi. “The central bank may have to raise borrowing costs to remove excess monetary accommodation.”
Reserve Bank of India Governor Y V Reddy has raised the overnight lending rate five times since January 2006 to a four-year high of 7.5% to slow inflation, currently at 6.1%. The central bank, which has a 5% target for inflation, next meets in Mumbai on 24 April.
India’s $854 billion economy will probably expand a record 9.2% in the year to 31March, following 9% growth in the previous year, the government said on 7 February. That’s the fastest pace after China among the world’s major economies.