India's Jan manufacturing PMI soars to 8-month high; raises uncertainty over rate-cut in near-term

Jan manufacturing PMI at 8-month high
India's manufacturing sector grew at fastest rate in eight months during the month of January 2012, even as demand conditions improved during the month coupled with strong growth in new order volumes.

The seasonally adjusted HSBC manufacturing purchasing managers' index (PMI) compiled by Markit, soared to 57.5 from 54.2 in December. Reading above 50 separates growth from contraction.

Commenting on the performance, Leif Eskesen, Chief Economist for India & ASEAN at HSBC said “Activity in the manufacturing sector rebounded again in January led by higher demand from both domestic and foreign clients, suggesting some recovery in sentiment in recent months. The rebound in growth kept backlogs of work growing and employment growth in positive territory".

However, HSBC Markit also warned that input prices continued to rise during the January month, thus limiting the space for manufacturers to reduce the output prices. Amid high prices of inputs and outputs, HSBC stated that India's central bank should not go for rate cut yet and wait for prices to ease.

“All in all, these numbers suggest it's premature for the RBI to cut policy rates and that they have to await evidence of a significant and sustained decline in inflation and/or further materialization of down side risks to growth before they can roll out rate cuts", added Leif Eskesen.

However, during the latest monetary policy review of January 24, RBI had cut the CRR by 50 basis points and indicated that repo rate would be the next possible cut, citing improving inflation pressures and declining growth.

Read more about: rbi, monetary policy, inflation, hsbc, crr
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