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Factory Output Growth Jumps To 17-Month High, Inflation Rises To 5.2%

Industrial output grew at the fastest pace in 17 months to 8.4 per cent in November, according to government data.

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Factory Output Growth Jumps To 17-Month High, Inflation Rises To 5.2%

Manufacturing grew 10.2% in November against 2.5% in October.

Highlights

  1. Strong growth in manufacturing pushes industrial growth in November
  2. GDP is expected to grow at 6.5% this fiscal
  3. Analysts expect RBI to keep interest rate unchanged this year
Industrial output grew at the fastest pace in 17 months to 8.4 per cent in November, according to government data released on Friday.  The previous high was recorded at 8.9 per cent in June, 2016. Economists surveyed by Reuters had forecast 4.4 per cent growth in output, compared with a downwardly revised 2.0 percent year-on-year increase in October. Separately, annual retail inflation accelerated in December to a 17-month high of 5.21 percent, government data showed on Friday, mainly driven by faster rises in prices of food and fuel products. Analysts polled by Reuters had forecast December's CPI inflation to rise to 5.10 per cent from November's 4.88 per cent.

Strong growth in manufacturing helped push up industrial growth in November. Manufacturing grew 10.2 per cent against 2.5 per cent in October. Mining grew at 1.1 per cent in November while electricity grew at 3.9 per cent.

The GDP or gross domestic product is expected to grow at 6.5 per cent this fiscal (2017-18), according to the first advance estimates of the Central Statistics Office, released earlier this month. The economy had clocked a 7.1 per cent growth rate in 2016-17.

Many analysts expect RBI to keep interest rate unchanged this year due to rising inflation. "It's slightly higher than our estimate. We believe that current rate easing cycle by the central bank is over for now. And, with inflation expected to continue to taper up all the way until the middle of the year, we do not expect any kind of changes in the policy rate until the end of the year," says Tirthankar Patnaik, India Strategist at Mizuho Bank.

Last month, the Reserve Bank of India held its policy rate and reiterated a neutral stance but said that "all possibilities are on the table" depending on how price pressures and growth pan out. For the six months through March, the RBI slightly raised its inflation projection - already above its 4 percent medium-term target - to 4.3-4.7 percent.

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