India inflation drops as factory output quickens


NEW DELHI: India’s inflation rate fell lower than analysts’ expectations while factory output inched higher, official data showed on Wednesday, adding pressure on the central bank to further cut interest rates.

Consumer prices cooled to 3.78 percent in July from a year earlier, according to the statistics ministry, lower than the 4.4 percent predicted by a Bloomberg survey.

According to the data, industrial production grew 3.8 percent in June, the highest in four months, and higher than Bloomberg’s prediction of 3.5 percent.

The latest inflation figure was down from 5.40 percent recorded in June, while factory output rose from May’s 2.7 percent—signaling a boost in Asia’s third largest economy.

The Reserve Bank of India (RBI) kept interest rates unchanged earlier this month, resisting pressure for a fourth cut of the year and saying the country’s economic recovery was “still work in progress.”

But Finance Minister Arun Jaitley cheered Wednesday’s data on Twitter, saying it showed “that the economy is firmly on the growth path.”

RBI Governor Raghuram Rajan has made keeping inflation below six percent a target, but has already cut interest rates three times this year in a bid to inject life into the economy, which at 7.5 percent growth outperformed China’s for the first three months of 2015.

Rajan insisted that any further reduction would have to wait until the inflationary effect of annual monsoon rains is known in a couple of months time.

Research firm Capital Economics voiced hope for further rate cuts despite Rajan’s focus “on the impact of a potentially weak monsoon on local food prices.”

“Even with this in mind, we think that there is scope for one more interest rate cut in this loosening cycle,” it said in a statement.

Prime Minister Narendra Modi’s government has made reviving the economy a priority since coming to power last May, introducing reforms aimed at boosting demand and increasing foreign direct investment.



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