(Updates with closing market prices in fifth paragraph.)
Feb. 10 (Bloomberg) -- India’s industrial production rose less than estimated in December, signaling weakening domestic demand as the global recovery faltered. Bonds rose and stocks and the rupee fell.
Output at factories, utilities and mines climbed 1.8 percent from a year earlier, after a 5.9 percent advance in November, the Central Statistical Office said in a statement in New Delhi today. The median of 23 estimates in a Bloomberg News survey was for a 2.6 percent gain.
The deterioration in factory output may fan concern India’s growth is slowing after the government forecast the weakest rise in gross domestic product since 2009. The central bank has signaled readiness to cut rates and shield the economy if inflation eases further, with a fall in Chinese exports in January underscoring the threat to Asian expansion from Europe’s protracted debt crisis.
“We’ll have to accept that we are in a slowdown mode and factory output is likely to remain subdued for the first half,” said Arun Singh, Mumbai-based senior economist at Dun & Bradstreet Information Services India Pvt. “Moderating growth and cooling inflation will pave the way for the Reserve Bank of India to reduce interest rates in April.”
The rupee, Asia’s worst-performing currency last year with a 16 percent tumble against the dollar, declined 0.2 percent to 49.4100 at the close. It has rebounded about 7 percent so far in 2012. The BSE India Sensitive Index fell 0.5 percent. The yield on the 8.79 percent note due November 2021 fell seven basis points, or 0.07 percentage point, to 8.20 percent from yesterday.
Manufacturing gained 1.8 percent in December from a year earlier after a 6.6 percent advance in November, today’s report showed. Electricity output climbed 9.1 percent, while mining fell 3.7 percent.
India’s government on Feb. 7 predicted gross domestic product will rise 6.9 percent in the 12 months through March from a year earlier, the least since 2008-2009. Asia’s third- largest economy expanded 8.4 percent in the last financial year.
India’s inflation moderated to 6.6 percent in January, a more than two-year low, according to the median estimate in a Bloomberg News survey ahead of a report due Feb. 14. That pace would remain the fastest in the so-called BRIC group that also includes Brazil, Russia and China.
The Reserve Bank on Jan. 24 cut the amount of deposits lenders need to set aside as reserves for the first time since 2009, seeking to ease a cash squeeze and bolster expansion.
It reinforced guidance that future rate actions “will be towards lowering them,” while saying inflation risks made it “premature” to start reducing borrowing costs. The central bank kept the repurchase rate at 8.5 percent for a second month, following 3.75 percentage points of increases from mid-March 2010 to October last year to fight inflation.
Asia-Pacific officials are striving to weather the impact of Europe’s debt turmoil. Expansion has eased in countries from China to South Korea, prompting central banks to cut rates or leave them on hold. Indonesia unexpectedly lowered borrowing costs by a quarter-point this week, while both Australia and South Korea left them unchanged.
China today said its imports and exports both contracted for the first time in more than two years in January.
In India, businesses have reported slowing output growth. Production at steel companies, including Tata Steel Ltd., India’s largest maker of the alloy, rose 2.2 percent in December from a year earlier, compared with 5.1 percent in November, government data shows.
The $1.7 trillion economy also faces pressure from budget and trade deficits and policy gridlock inhibiting investment.
India’s trade gap widened to a three-month high of $14.7 billion in January, the commerce ministry said yesterday.
Finance Minister Pranab Mukherjee faces a fiscal shortfall that reached 92.3 percent of the 2011-2012 target in the nine months through December, imperiling the government’s aim of reining in the gap. He presents the next budget on March 16.
--With assistance from Manish Modi in New Delhi. Editors: Sunil Jagtiani, Rina Chandran
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