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June Qtr Growth Seen Strongest Since Dec '07

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India's economy probably grew an annual 8.7 per cent in the June quarter, its strongest pace since the December quarter of 2007, the median forecast of 21 economists showed. Forecasts ranged between 7.7 and 9.4 per cent.

The economy, which had expanded an annual 8.6 per cent in the March quarter, has been riding on robust manufacturing activity and the outlook for farm output has brightened following good monsoon rains.

Factor To Watch

* Manufacturing production rose an annual 12.2 per cent in the quarter through June, compared with a growth of 3.4 per cent in the same quarter last year.

* Monsoon rains, which are vital for boosting farm production and rural incomes in the nation of more than 1.2 billion people, have been near normal in the four-month annual season that began in June.

* This has helped cool wholesale prices-based inflation to just under 10 per cent in July, the slowest annual rise in last six months.

* Still, the Reserve Bank of India (RBI) said on Tuesday price pressures remained a major concern and it might have to give precedence to containing inflation over other policy objectives.

* The central bank had raised key interest rates in July for the fourth time since mid-March, signalling its urgency to stamp on high headline inflation.

Market Impact

* Bond traders are pricing in a 25 basis points increase in key rates at the next RBI policy review on Sept. 16. Traders say a stronger-than-expected GDP data will likely push up the 10-year bond yield to 8.10 percent, the highest in four months, reinforcing rate hike expectations.

* The 10-year yield had closed at 8.03 percent on Thursday, up 31 basis points since the last policy review on July 27.

* The 1-year overnight indexed swap rate is seen rising to 6.15-6.20 per cent if data exceeds expectations, but a further upside is seen limited by the currently comfortable cash conditions.

(Reuters)


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economy india wpi economic growth development manufacturing