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India Industry Output Posts Weak Growth in February

Altaf Qadri

India's industrial output barely grew in February and retail inflation slowed slightly for the first time in six months in March, but double-digit price rises still pose a challenge for policymakers seeking faster growth without runaway inflation.

Production at factories, mines and utilities grew 0.9 percent from a year earlier, better than the 0.7 percent contraction forecast by analysts but not enough to convince economists that Asia's third-largest economy has bottomed out.

The weak number keeps the pressure on the central bank to cut interests rates, but economists said the slight drop in consumer price inflation to 10.39 percent in March was unlikely by itself to convince the bank. The previous month annual retail price inflation was 10.91 percent.

(Read More: Lack of Affordable Housing Forces India's Poor Into Death Traps)

"More focus will be on the wholesale price data, which is out next Monday.

We need to see this series easing further to raise hopes of further RBI cuts," Jonathan Cavenagh, a foreign exchange strategist with Westpac in Singapore.

(Read More: Tough Road Ahead for India Carmakers as Boom Market Crashes)

India's 10-year benchmark bond yield fell 4 basis points to 7.86 percent from levels before the data as investors bet slowing consumer inflation would provide room for the central bank to cut interest rates next month.

The rupee strengthened to 54.41/42 from around 54.45/46 before the data, although the benchmark BSE share index was largely unaffected, remaining down over 1 percent on the day.

(Read More: India's Chidambaram Sees 8% Growth by 2015)

Plagued by a combination of weak corporate investment and flagging consumer demand, the Indian economy is struggling to recover after growing at its slowest rate in a decade in the fiscal year that ended in March.

GDP growth hit a near four-year low of 4.5 percent in the quarter to end-December, a new low for an economy also battling stubborn inflation and a record current account deficit.

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