HSBC not enthused by August bounce back in Indian production

Mumbai, Nov 12 (UNI) The surprise increase in India's industrial production in August at 4.8 per cent was hardly a matter to rejoice, as the three month moving average softened slightly at 4.5 per cent, lowest since June 2002, according to analysts at the HSBC Bank.

In a report release here today, they said the outturn of 4.8 per cent, which was up from 1.4 per cent of the previous month, was well down from the 13.6 per cent peak, witnessed in the three months to January 2008.

Production growth also looks set to weaken further as the full force of the developed world recession, the lagged effects of the previous rate rises and the domestic credit-crunch hit home. ''Indeed it is not impossible that we could see production growth turn negative for a month or two as companies work off inventories built in anticipation of a reasonably strong festival season, which seems to have disappointed (motor vehicle sales in particular were very poor), the report said.

''The direction is clear and unfortunately increasingly likely to be associated with job losses,'' the report added.

With the policy ball very much in the RBI's court (rather than that of the government, which is constrained by the state of the public finances) further rate action looks certain and could come at any point, the report opined.

With some (although admittedly not many) commercial banks now lending to the RBI, cuts in the reverse repo rate (as well as the repo rate) are becoming increasingly likely, the report added.

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