INDIA'S annual industrial output growth has slowed unexpectedly in May. This is another sign that shows Asia, third-largest economy in the world losing steam after a string of interest rate hikes.
The 5.6 per cent growth in production by factories, mines and utilities is the weakest in nine months and sharply undershot analysts' projections of 8.5 per cent expansion.
And with inflation at nine per cent and price pressures spreading from food and energy to manufacturing, analysts forecast the Central Bank would have to raise interest rates again later this month.
The hike would be the 11th since March 2010.
"The Central Bank has made it quite clear it is prepared for lower growth in pursuit of lower inflation," says Brian Jackson, Senior Emerging Markets Strategist at Royal Bank of Canada in Hong Kong.
Jackson forecast a 25 basis point hike when the Central Bank meets on July 26 and a total 50 basis points increase through the financial quarter to September.
Analysts expect inflation of near 10 per cent when June figures are released this Thursday.
India's May's output figure was down from 8.5 per cent in the same month a year ago and a revised 5.8 per cent in April.
The data spelled more bad news for Prime Minister Manmohan Singh who on Tuesday (July 12) reshuffled his Congress-led Government after months of bad publicity over corruption scandals.
Finance Minister Pranab Mukherjee says the numbers were "not encouraging" and that the Government was seeking to boost the manufacturing sector which accounts for over 75 per cent of the Industrial Production Index.
Manufacturing expanded just 5.6 per cent in May – down from 8.9 per cent a year earlier.
In China, Asia's biggest economy, industrial growth is also cooling with central bankers raising rates earlier in the week for the third time in 2011 to tame inflation of 5.5 per cent, the highest in nearly three years.
India's latest output figures were compiled using a new index with an updated base year aimed at more accurately reflecting output trends.
