Amid growing expectations of India surpassing it's GDP growth target of 8.5% for the present fiscal year that closes March 2011, India has recorded must faster than forecast of industrial output for July 2010. Industrial output rose 13.8% from an year earlier which is nearly double the forecast 7.7% of the market analysts. Capital goods' output is seen behind the surge in industrial output. This is also higher than the rise in June that was revised to 5.76%.
Analysts see a strong case of hike in interest rate to contain inflation. Inflation began to ease for last two months, though very slowly from double digit figure. Balancing between maintaining growth momentum and containing inflation has become a big problem for central bank of India RBI. RBI has already raised interest rate by 100 basis points in 2010 and further rise of 50 basis points is expected by the end of December 2010. Soaring prices have prompted the opposition parties in India to observe national strike on 7th September. Regular protests against rising prices and agricultural inputs have become the order of the day.
Summer monsoon gave slightly more than normal rainfall so far this year. Deputy Chairman of the Planning Commission Monteksingh Ahluwalia has been advocated for last half an year that the good summer monsoon would pull down the headline inflation in Asia's 3rd largest economy. Now he sees capacity constraints as the cause for still higher headline inflation. Policy review meeting is due for the coming Thursday. It is expected to concentrate on containing inflation, maintaining growth momentum and steps to be taken to decrease the rising prices. It is widely expected for the Policy Review Meeting to decide to raise interest rate.
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