Indian quarterly growth slows to 7.7%

Central bank sticks to tightening of monetary policy.

Afp August 30, 2011

NEW DEHLI: India posted its slowest economic growth in six quarters on Tuesday, with output up 7.7 percent year-on-year, as expansion was hit by the longest stretch of monetary tightening in a decade.

The figure for March-June slightly outpaced market expectations but was just below the 7.8 percent expansion logged in the previous quarter and sharply down from the 8.8 percent a year earlier, India’s statistics bureau reported.

“The data clearly shows the economy has slowed appreciably in the last 12 months,” Brian Jackson, senior emerging markets strategist at the Royal Bank of Canada in Hong Kong, told AFP.

“The aggressive monetary policy tightening by the Reserve Bank of India has had an impact on growth. But it won’t stop them raising rates - they’ve already said they’re prepared to accept slower growth to lower inflation.”

Analysts had predicted growth at 7.6 percent for the three months.

Most economists forecast another 25 basis point rate hike in September by India’s central bank, which has already raised rates 11 times in 18 months as it struggles to rein in inflation, now near 10 percent.

“India has raised rates much faster than any other major country but inflation is also a bigger problem than in any other major economy,” DK Joshi, chief economist at leading Indian rating agency Crisil, told AFP.

He forecast another quarter point hike by the bank next month that would lift its benchmark lending rate to around a three-year high of 8.25 percent.

The central bank has said it is unwilling to accept high inflation as “the new normal” and last week warned of “a difficult year.”

Published in The Express Tribune, August 31st,  2011.