Factory output likely shrank 0.8 percent in July

BANGALORE (Reuters) - India's factory output likely shrank for the third straight month in July, albeit at a slower pace than the month before as production in the country's core industries picked up, a Reuters poll found.

The poll showed output at factories, mines and utilities shrank an annual 0.8 percent, after contracting 2.2 percent in June, according to the median consensus of 22 economists.

"Underlying industrial production momentum is expected to remain weak, despite a slight improvement in the infrastructure index," economists at Barclays said in a note to clients.

Growth in Asia's third-largest economy has slowed to below 5 percent in each of the past three quarters and with the central bank concentrating on propping up the battered rupee currency many economists have slashed GDP forecasts for this fiscal year.

Infrastructure sector output rose 3.1 percent year-on-year in July from 0.01 percent in the previous month, government data showed last week.

The sector is made up of the eight core industries - coal, crude oil, oil refinery, natural gas, steel, cement, electricity and fertilisers - and accounts for 37.9 percent of India's industrial output.

Other data on Thursday is expected to show that consumer inflation probably eased to 9.55 percent year-over-year last month, only just below July's 9.64 percent, as food prices continued to rise, the poll also found.

"A weak rupee and significantly higher food and fuel prices are likely to maintain upward pressure on CPI inflation," wrote Barclays' economists.

The rapidly falling rupee has aggravated price pressures since rising crude oil and gold prices, two of India's most imported items, have swollen the country's already huge import bill.

An exodus of funds from emerging markets, triggered by the U.S. Federal Reserve's hint at paring back its stimulus, has left the Indian rupee suffering more than its peers as it is weighed down by a bloated current account deficit. (Reporting by Yati Himatsingka; Polling by Hari Kishan; Editing by Kim Coghill)

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