Indian
economy seems to have succumbed a little to the global slowdown as services
activity in the country remained soft in June, raising fears over a sluggish
recovery in Asia’s third biggest economy, strengthening the case for the
Reserve Bank of India (RBI) to deliver another interest rate cut in the
upcoming monetary policy review in August.
Signaling
fresh signs of slowdown, a gauge of growth in India’s services sector cooled in
June as new business failed to pick up amid tepid increase in fresh orders,
indicating weak underlying demand in the Indian economy.
According to
Markit Economics report, the Nikkei India Services Business Activity Index eased
for a third straight month, coming in at 50.3 in June compared to 51 in May,
with a reading above 50 indicating expansion in services activity over the
previous month.
The softness
in the services activity was primarily on the back of fragile global economic
conditions and subdued pace of domestic activity. New work at services
providers grew at the slowest pace in 11 months as competitive pressure limited
greater gains.
However, its’ not all bad. The recent anemic growth
was counterbalanced by manufacturing production, which surged to a three-month
high in June, pushing the composite PMI that combines services and
manufacturing from 50.9 in May to 51.1 last month.
Indian firms increased
prices at a weaker pace last month, indicating that retail inflation could
remain low in the coming months. Consumer inflation, at 5.76 per cent in May,
is somewhat above the RBI's near-term target of five per cent, on higher food
costs. According to analysts, country’s consumer inflation may have eased
slightly to 5.6 per cent in June 2016 from 5.76 per cent surge in May, leaving
a bit more scope for the RBI to cut interest rates, going forward.
The RBI has
kept its benchmark interest rate unchanged at a five-year low of 6.50 per cent
since April and is expected to cut rates one more time before Governor Raghuram
Rajan's term ends in September, given that the inflationary pressures in the
broader economy remain moderate.
Latin Manharlal
No comments:
Post a Comment