Indian economy sharply slows down

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Indian economy sharply slows down

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Indias slowing economic growth is a cause for worry, said research group Moody's Analytics.

17 October,2011 06:49 pm

The group highlighted the failure of aggressive interest rate hikes to curb near double-digit inflation.India’s growth has weakened under the brunt of 12 interest rate increases since March 2010 that have pushed up borrowing costs for everything from consumer appliances to plant equipment. India’s growth would slow from an expected 7.8 percent year-on-year in the first half of 2011 to 6.5 percent by mid-2012, said Glenn Levine, senior economist at Moodys Analytics.That still implied a “soft landing” a rate of growth high enough to avoid recession -- Levine said in a research note, while warning that this outcome was “by no means assured”. Although the economy of the neighbouring emerging market China is also slowing, it is happening at an entirely manageable rate, Levine said.“India presents a more serious cause for worry” as its economy “is slowing sharply,” he said. With inflation remaining stubbornly high at 9.72 percent in September, Indias central bank may be forced into further monetary tightening in the months ahead which would exacerbate the slowdown, Levine said.Many economists expect another 25-basis point rate hike later this month, pushing Indias benchmark lending rate to around a three-year peak of 8.50 percent. “So far, the Reserve Bank of Indias 325 basis points worth of tightening must be judged a failure while domestic demand has been hit hard, Levine added.The faltering US economy and euro zone debt crisis are beginning to curb growth in Asia, prompting many central banks in the region to shift focus from fighting inflation to promoting growth.