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 last 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. Output growth was also sharply lower than the nine-month high of 5 per cent the month before.

With inflation staying below the central bank's target range of 6 per cent 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 (RBI) 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 adviser 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." AFP