India’s economy is likely to be hurt in the aftermath of Indian Prime Minister Narendra Modi’s shock clampdown on cash, private surveys showed, adding pressure on the Indian central bank to lower interest rates at tomorrow’s review.
The Nikkei India services purchasing managers’ index (PMI) was at 46.7 last month, a report showed yesterday, the lowest since December 2013 and below the 50-point mark that indicates a contraction.
Services contribute about 60 percent to India’s US$2 trillion economy, dragging down the composite PMI to 49.1, the lowest since March 2014.
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Reports last week showed manufacturing would also slow in the final months of this year after a disappointing July-to-September GDP growth.
“New business declined for the first time since June 2015, leading to a solid reduction in activity,” yesterday’s report said. “In spite of the falls in output and new orders, optimism regarding future activity improved. Input costs were broadly unchanged, whereas prices charged decreased slightly.”
The data are among the first inputs Reserve Bank of India Governor Urjit Patel would receive as he prepares to review policy.
Most economists in Bloomberg surveys predict he will cut borrowing costs this week as India stands to lose its status as the world’s fastest-growing big economy.
Last month’s services PMI data showed that activity dropped in three of six monitored sectors; new business index halted 16 months of gains; backlogs rose due to delayed payments from clients; employment rose marginally following October stagnation; one in four firms surveyed forecast activity growth in the coming 12 months — they cited replacement of high-value rupee notes, the withdrawal of unregulated companies from the market, improved advertising and favorable government policies.
Patel would lower the benchmark repurchase rate to 6 percent from 6.25 percent on Wednesday, according to 23 of 28 economists in a Bloomberg survey.
Two predict a cut to 5.75 percent while three see the rate unchanged.
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