India’s manufacturing activity has moderated in September
indicating that the growth in the sector has lost some momentum, creating a
case for a reduction in interest rates by the Reserve Bank of India.
According to a Markit Economics report, Nikkei India
Manufacturing Purchasing Managers’ Index, a gauge measuring activity in the
manufacturing sector stood at 52.1 in September compared to 52.6 in August,
with a reading above 50 signaling expansion in the manufacturing activity over
the previous month.
The activity in the Indian manufacturing industry eased
slightly in September but the output is still rising at a decent pace and the
sector looks likely to have delivered a stronger contribution to the GDP growth
in Q2 FY2016/17, with the quarterly reading for the PMI’s Output Index up from
51.4 during April-June to 53.6.
The biggest area of strength for factory growth was the
external demand as firms witnessed robust surge in new export orders since July
2015, supported by the growth in output and purchasing activity, while new
improved client demand also supported the upswing in order books.
As far as prices of manufacturing goods are concerned,
the survey noted that the average purchase costs increased at a faster pace in
September, but one that was weak compared to its long-run trend. Data implied
that manufacturers attempted to protect profit margins as output charges were
raised further.
Despite ticking higher, the rate of inflation was
historically muted and it has given the central bank enough room to ease policy
further. The Reserve Bank of India in its monetary policy review today slashed
its key lending rate or the repo rate by 25 basis points to a six-year low of
6.25 per cent, from 6.5 per cent.
Consumer inflation in India cooled sharply to 5.05 per
cent in August, almost at the RBI's March 2017 medium-term target of 5 per cent,
and with favorable monsoon rains, it is expected to tread lower in the coming
months.
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