India’s manufacturing growth slowed to a three-month low last month after the central bank raised interest rates last year at the fastest pace in Asia.
The purchasing managers’ index fell to 56.7 from 58.4 in November, HSBC Holdings PLC and Markit Economics said in an e-mailed statement on Monday. Any data above 50 indicates expansion.
The reading has exceeded 50 since April 2009, showing that consumption is holding up amid the monetary policy tightening. The Reserve Bank of India (RBI) said last week that threats to growth have “receded” and inflation risks “have come to the fore,” signaling it may boost rates further.
PHOTO: REUTERS
“The overall growth momentum remains strong and the main challenge at this moment is inflation,” N.R. Bhanumurthy, an economist at the New Delhi-based National Institute of Public Finance and Policy, said before the report.
He expects the central bank to increase rates by a quarter-point in the next monetary policy statement scheduled for Jan. 25.
The yield on the 10-year government bond gained three basis points to 7.94 percent at 11:15am in Mumbai, India. The Bombay Stock Exchange’s Sensitive Index advanced 0.4 percent, while the rupee was little changed at 44.67 against the US dollar.
“The momentum eased a bit, but output is still growing strongly and of more concern is a steeper rise in both input and output prices,” said Leif Eskesen, Singapore-based chief economist at HSBC Holdings. “The RBI’s hawkish tones are well founded and we expect the RBI to resume increasing rates possibly this month.”
Manufacturing growth cooled “marginally” last month as new business orders and exports slowed, he said.
Reserve Bank governor Duvvuri Subbarao, who increased rates six times last year, held off on boosting borrowing costs on Dec. 16 as a record 1.1 trillion rupees (US$24.5 billion) of share sales last year caused a cash squeeze. The bank’s benchmark repurchase rate is 6.25 percent.
In China, manufacturing growth slowed for the first time in five months last month, HSBC and Markit Economics said on Thursday. The PMI dropped to 54.4 from 55.3 in November.
Hero Honda Motors Ltd, maker of half the motorcycles sold in India, said yesterday sales increased 33 percent last month from a year earlier, a sign of strength in consumer demand.
India’s merchandise exports rose 26.5 percent to US$18.9 billion in November from a year earlier, the fastest pace in five months, a government report showed yesterday. Imports gained 11.2 percent to US$27.89 billion.
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