Making a strong case for the central bank to continue with the accelerated pace in the normalisation of key policy rates, the purchasing manager?s index (PMI) for the month of July showed a reading of 57.6, higher than 57.3 in the month before. A reading of 50 or above on the HSBC PMI shows an expansion in the industrial activity. With an expansion in July, the factory output has shown an expansion for the sixteenth consecutive month.
?The economy has given another leg up in July as new orders continued to pour in,? said Frederic Neumann, a Hong Kong-based economist at HSBC Holdings.?The central bank will need to apply the brakes more forcefully and dampen demand with further interest-rate hikes,? he added.
The Reserve Bank of India has hiked the key interest rates four times since mid March in an attempt to anchor the headline inflation which has been staying in double-digit territory since February. The food price inflation, which has been staying double-digit territory for more than eighteen months, fell to 9.67% in the second week of July on account of high base effect and expectations of a good kharif harvest.
?India is on a roll. Even the exports sector seems to be holding up well, despite worries over cooling demand abroad,? Neumann added. The new export orders index signaled expansion for 14 straight months. But Indian manufacturers shed jobs for the first time in four months in July. New business growth remained robust, driven by domestic orders, with orders index holding firmly above 60 since the start of this year.
But price pressures have shown no sign of slackening despite a series of interest rate rises from the Reserve Bank of India (RBI) and the latest PMI data showed that trend is continuing.
Official wholesale inflation, the most closely watched measure of price pressures, accelerated to 10.55% in June from 10.16% in May. Fuel inflation crept up in mid-July. The recent hike in petrol prices coupled with a risk of further adjustments to the presently-subsidised kerosene and diesel rates threaten to push headline inflation even higher.
The better than expected performance by the manufacturing segment in the first half of the calendar year has forced the Prime Minister?s EAC and RBI to hike the growth projections for the current financial year to 8.5% and 8.4% respectively. policymakers hope good monsoon rains, crucial for the farming sector and the whole economy, will help subdue soaring inflation.