You are here

India's inflation cools, factory output weakens

[MUMBAI] India's inflation rate fell to its lowest level in four months and growth in industrial output slowed, official data showed on Tuesday, increasing calls for an interest rate cut next month.

Consumer inflation eased to 4.87 per cent in April from a year earlier, the slowest pace since December, on the back of lower food costs, and down from 5.25 per cent in March, the data showed.

The latest figure was close to the 4.9 per cent figure predicted by economists surveyed by Bloomberg News.

Production at India's factories, mines and utilities, meanwhile, grew just 2.1 per cent in March from a year ago, lower than the 3 per cent forecast.

Market voices on:

Output growth was also sharply lower than the nine-month high of five percent the month before.

With inflation staying below the central bank's target range of six percent and with slower-than-expected growth in industrial output, analysts are predicting another interest rate cut by India's central bank.

"The Reserve Bank of India has room to reduce rates by 25 basis points before or on June 2," said Rupa Rege Nitsure, chief economist for L&T Financial Services, in Mumbai.

Although the RBI has cut rates twice this year, the bank held rates steady at its last meeting, saying banks were failing to pass on lower borrowing cuts to customers.

Siddharth Roy, economic advisor to India's giant Tata Group, called on the RBI to again lower rates in a bid to help businesses and boost growth in Asia's third-largest economy.

"Investment-led growth has stalled. Banks are grappling with bad loans and corporate balance sheets are weak," Mr Roy told AFP.

"Small firms are not getting money at lower costs. So consumer demand-led growth is the only option. The RBI has to cut." After 12 months in office, Prime Minister Narendra Modi has introduced a string of reforms to help businesses and attract foreign investment to try to revive the economy.

But his government's efforts to pass other key reforms, including one making it easier for businesses to buy land, have become stuck in parliament.

Inflation has cooled in recent months thanks largely to plummeting global oil prices. But a recent recovery in crude prices has raised concerns of higher inflation in India, which is heavily dependent on imported oil.

The RBI has a target of bringing inflation consistently below six per cent by January 2016, and to four per cent for the 2016-17 financial year.