Industrial growth raises rate hike fears

The industrial output in April, which grew an impressive 9.5 per cent, has strengthened fears that the Reserve Bank of India (RBI) may raise interest rates again soon.

Analysts, however, said rising interest rates and crude oil prices could moderate growth in the coming months.

In April last year, the index of industrial production grew 8.1 per cent, said Central Statistical Organisation on Monday.

"The strong industrial output number only reinforces the robust economic activity in India," said Sanjeet Singh, head of fixed income research at ICICI Securities.

"We are going to see higher interest rates, and it is not significant whether the RBI (raises) it at policy review (due late July) or out of it," he said.

Reflecting this view, gilt prices fell marginally immediately after the release of industrial production data.

"There is likely to be some upward pressure on interest rates," Saumitra Chaudhuri, economic advisor at rating agency Icra, said. "Faster industrial growth could push up inflation, signs of which one already can see."

The headline inflation based on wholesale price index eased to 4.68 per cent in week to May 27 from a seven-month high of 4.74 per cent a week ago.

Manufacturing sector, especially capital goods output, drove the industrial growth in production in April. Manufacturing and capital goods grew 10.4 per cent and 24.9 per cent, respectively, in April.

The industrial growth in April, the highest in six months, was way above market expectations.