Bloomberg News

India’s Output Drop Drives Currency Lower on Rate Bets: Economy

December 12, 2011

Dec. 12 (Bloomberg) -- India’s industrial output shrank for the first time in 28 months, pushing stocks and the rupee lower on concern faltering growth will force the central bank to suspend its fight against the fastest inflation in BRIC nations.

Production at factories, utilities and mines fell 5.1 percent from a year earlier in October, the government reported today. The slide exceeded the median of 24 estimates in a Bloomberg News survey for a 0.7 percent drop. Output was down 3.3 percent from September, the third decline in four months.

The slump reflects deepening fallout from Europe’s two-year sovereign-debt crisis, which has led policy makers across Asia to cut or hold borrowing costs in an attempt to protect their economies. Chinese export growth was the weakest since 2009 in November, giving officials at a work conference in Beijing this week more reason to shift policy focus toward boosting expansion next year, from curtailing inflation.

“While the Governor of the RBI continues to stress that he is more concerned about inflation than growth, this is the sort of number that will surely make him sit up and take notice,” said Robert Prior-Wandesforde, a Singapore-based economist at Credit Suisse Group AG. “It would be a surprise not to see a markedly more dovish tone emerge” at the Reserve Bank of India’s policy meeting Dec. 16, he said.

The BSE India Sensitive Index fell 1.1 percent even as Asian equities rose, with MSCI Asia Pacific Index rising 1 percent as of 4:01 p.m. in Tokyo. The Indian rupee lost 0.8 percent, leading declines in a basket of 10 Asian currencies tracked by Bloomberg.

Inflation Rate

India’s inflation rate has exceeded 9 percent every month this year as the rupee’s 15 percent slump against the U.S. dollar during the period, Asia’s worst performance, adds to the cost of imported goods.

Consumer prices rose 6.6 percent in Brazil, 6.8 percent in Russia and 4.2 percent in China last month.

RBI Governor Duvvuri Subbarao has raised the repurchase rate by 375 basis points since the start of 2010, to 8.5 percent, in the fastest round of increases since the central bank was established in 1935, according to data compiled by Bloomberg.

The MSCI Asia Pacific Index declined 2.2 percent last week, as Europe’s struggle to resolve its sovereign-debt turmoil darkens the outlook for the global economy. Fitch Ratings said it’s poised to cut growth estimates for Asian nations.

Chinese Conference

In China, officials began today the annual economic work conference that maps out development plans for the next year, the official Xinhua News Agency reported. China’s shrinking trade surplus may encourage Premier Wen Jiabao to keep cutting banks’ reserve requirements to sustain expansion.

Reports in Australia showed the nation’s trade surplus narrowed to A$1.6 billion ($1.63 billion) in October, the least in seven months, while mortgage lending growth weakened. The Reserve Bank of Australia on Dec. 6 made its first back-to-back interest-rate cuts since 2009.

Economic expansion has moderated in nations from India to China to Brazil, adding pressure on policy makers to step up efforts to support growth.

South Korea’s economy is set to grow at the slowest pace in three years in 2012 as demand for exports wanes, the nation’s finance ministry said today. Gross domestic product may rise 3.7 percent next year from 3.8 percent in 2011, and 6.2 percent last year, it said.

Turkish Growth

Turkey may today report a 6.3 percent gain in gross domestic product in the third quarter from a year earlier, compared with an 8.8 percent pace in three months through June, according to the median of nine estimates in a Bloomberg survey.

In Europe, Italy is scheduled to sell 7 billion euros of 365-day bills today, while France is due to auction 6.5 billion euros of short-term debt.

A summit of European leaders in Brussels last week, which French President Nicolas Sarkozy called the last chance to rescue the euro from the two-year debt crisis, set a March deadline to flesh out new fiscal rules.

The meeting also added to funds to protect cash-strapped economies, with an extra 200 billion euros for the International Monetary Fund. Leaders will accelerate the start of a permanent rescue facility to next year and reassess its 500 billion-euro cap.

Bundesbank President Jens Weidmann told the Frankfurter Allgemeine Sonntagszeitung that while the new accord represents “progress,” the onus is on governments rather than the Frankfurt-based European Central Bank to resolve the crisis with financial backing.

--With assistance from Michael Heath in Sydney, Li Yanping and Victoria Ruan in Beijing, Aki Ito in Tokyo, Susan Li in Hong Kong, Eunkyung Seo in Seoul, Patrick Donahue in Berlin and Simon Kennedy in London. Editors: Sunil Jagtiani,

To contact the reporters on this story: Unni Krishnan in New Delhi at

To contact the editor responsible for this story: Stephanie Phang at

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