India’s industrial output probably grew 5.0% in August from a year earlier, on a favourable statistical base effect, despite successive interest rate rises slackening the pace of growth, a Reuters poll showed.
The forecasts from 25 analysts ranged from 3.6% to 7.0%, with a majority — 16 of 25 — looking for a reading of 5.0% or higher.
“The rise is more base-effect driven. One potential support factor could be festive demand, though this is not to mean that factory output is on its way to recovery,” said Radhika Rao, economist at Forecast PTE in Singapore.
Industrial output growth had slumped to 3.3% in July, its weakest annual pace in nearly two years.
Factors to watch
* The HSBC Markit India Manufacturing PMI fell closer to the 50 mark that divides growth from contraction in August, sinking to its lowest reading since March 2009 at 50.4, indicating slowing output and orders growth.
* India’s infrastructure sector output grew 3.5% in August, sharply slower than a revised annual growth of 7.5% in July.
* The Reserve Bank of India (RBI) raised interest rates for the 12th time in 18 months in mid-September, continuing its tight monetary stance even as growth slowed in Asia’s third- largest economy.
* Exports in August rose 44% to USD 24.3 billion from a year earlier, while imports for the month rose 42% to USD 38.4 billion.
Market impact
* A reading of between 5 and 6% is unlikely to impact the market, traders said.
* A reading above 6% could push the one-year overnight indexed swaps (OIS) rate higher by 4 to 5 basis points and the five-year rate up 2 to 3 basis points, but the government bond yields may not react much given the sharp rise already seen in the recent sessions, they said.
* Inflation data for September due on Friday will also be crucial to form expectations around the Reserve Bank of India’s policy review on October 25.
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