A fall in Indian factory output at the end of 2008 and the prospect inflation could turn negative in coming months bolstered analysts' expectations for further interest rates cut by showing the pressure the economy was under.
Industrial output unexpectedly fell 2 percent in December from a year earlier, the second fall in three months and sharply below November's downwardly revised 1.7 percent, data showed on Thursday.
The median forecast in a Reuters poll of economists was for industrial output to rise by 1.3 percent.
'Clearly firms are still struggling with excess inventories and cutting production,' said A. Prasanna, an analyst at ICICI Securities.
'While there is likely to be some improvement in output numbers in the current quarter, the overall economic outlook continues to be weak on the back of sluggish domestic demand and a collapse in external demand.'
Manufacturing production fell 2.5 percent from a year earlier, data showed.
