Preview: Factory output likely slowed again in Feb, March inflation subdued

BENGALURU (Reuters) - Indian factory growth slowed for a third month running in February, and while March retail inflation picked up slightly it remained below the Reserve Bank of India's target, a Reuters poll of economists found.

Weaker growth and inflation below the RBI's goal of 6 percent by January 2016 would give the central bank room to ease policy further this year to spur activity.

The survey of 17 forecasters predicted India's industrial production (IIP) increased 2.4 percent in February from a year earlier, below January's 2.6 percent.

Much of the deceleration can be attributed to a four-month low in production among core industries.

Infrastructure output growth - which accounts for nearly 40 percent of overall factory production and comprises key industries like coal, cement, steel and electricity - slowed to 1.4 percent in February.

Demand has also been hurt by a resilient rupee currency, which has made exports more expensive. It has gained over 1 percent against the dollar this year compared to a widespread weakening among many currencies.

"Exports have been pretty bad for the last three to four months partially because of a strong appreciation of the rupee. It has been a key drag on IIP for quite sometime," said Bhupesh Bameta, economist at Quant Capital.

The median of 25 economists said India's consumer price inflation picked up slightly to 5.5 percent last month from February's 5.37 percent.

"A few points up and down (in the inflation rate) is more to do with a recent supply disruption in food. Otherwise there is no other factor which signals that it is going up," said Sujit Kumar, economist at Union Bank of India.

He said room for more policy easing by the RBI this year is limited since inflation will probably average just below target and there is uncertainty over when the U.S. Federal Reserve will hike rates.

The RBI has cut rates twice this year at unscheduled meetings and a separate survey conducted before last week's policy review predicted two more cuts by end-2015.

(Reporting by Deepti Govind; Polling by Shaloo Shrivastava and Sarmista Sen; Editing by Kim Coghill)