July IIP growth seen up 7.7 pct

The industrial output growth probably picked up to 7.7 per cent in July from a year earlier.

The industrial output growth probably picked up to 7.7 per cent in July from a year earlier,the median forecast of 21 economists showed. Annual growth had slowed in June to 7.1 per cent from 11.5 per cent in May.

Forecasts ranged from a rise of 6.8 per cent to 9.5 per cent.

FACTORS TO WATCH:

— The HSBC Markit Purchasing Managers’ Index,an indicator of manufacturing expansion,was 57.25 in August,a slight decline from the measure for July. Still,August marked the 17th successive month the index was above the 50 mark that divides growth from contraction.

— Wholesale price inflation data due on Tuesday may provide further clues for the central bank’s policy response at its mid-quarter review on Sept. 16. The Reserve Bank of India has raised interest rates four times since mid-March to cool inflation in Asia’s third largest economy,and is expected by many analysts to lift rates next week by 25 basis points.

— The food price index rose an annual 10.86 per cent in the week to Aug. 21 compared with the previous week’s increase of 10.05 per cent as prices of fruit and vegetables rose due to flooding and transportation bottlenecks.

MARKET IMPACT: A pick up in the industrial output growth rate could strengthen expectations for a rate increase next week,and drive bond yields higher. The 10-year benchmark yield has risen 22 basis points to 7.94 per cent since the last rate rise in July.

However,if factory output growth slows to less than 7 per cent,bond yields and overnight indexed swap rates will ease. The benchmark BSE share index,which has climbed about 6.5 per cent in the year to date,could also come under pressure.

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Financial markets in Mumbai are closed on Friday for a local holiday,and reaction to the data will be seen when trading resumes on Monday.