Manufacturing growth slips to 3-month low of 52.9 in January; RBI rate cut hopes rise: HSBC PMI

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Bangalore | Updated: February 02, 2015 1:44 PM

HSBC Manufacturing PMI for India slips in January from December's 2-year high as new orders rose at a weaker rate despite factories keeping price increases to a minimum.

manufacturing growth, manufacturing growth in India, factory growth, factory growth in IndiaIndia’s factory growth slipped in January to 52.9. Indian manufacturing PMI was at two years’ high in December at 54.5. (Reuters)

Manufacturing growth slipped to a three-month low in January – after a two-year high in the previous month – on slower pace of order flows from domestic and global markets, raising hopes of a rate cut by the Reserve Bank of India (RBI).

The Reserve Bank is scheduled to review its policy rates tomorrow amid a growing clamour in the industry to bring down the cost of capital to boost the manufacturing sector.

According to the monthly HSBC-Markit survey released today, India’s headline Purchasing Managers’ Index (PMI) – a composite gauge of manufacturing business conditions —  fell from December’s two-year record of 54.5 to 52.9 in January.

A figure above 50 indicates the sector is expanding, while a figure below that level means contraction.

“Manufacturing activity continued to signal improvement in January, though the rate of growth slipped to a three-month low,” HSBC’s Chief India Economist Pranjul Bhandari said.

The slip in growth rate can partly be attributed to consolidation after two months of impressive upticks, it said.

The latest data signals sustained growth of manufacturing activity at the start of 2015, with output and new orders rising simultaneously for the fifteenth consecutive month.

“New orders, both from domestic and international sources, also continued to grow, though at a slower pace than in December. New orders were strongest in the consumer goods sector,” Bhandari said.

Meanwhile, growth of output and new business continued to have little impact on employment in January, as workforce numbers rose only marginally during the month.

On the price front, lower prices paid for metals, chemicals, plastics and energy led to the weakest rise in input costs. Accordingly, output charges rose only fractionally during the month.

“On the inflation front, growth in input and output prices moderated further due to cheaper commodity prices.

Sluggish growth and falling inflation further reinforces our view that the RBI should deliver upfront rate cuts. We expect the repo rate to be lowered by 75 bps in the first half of 2015,” Bhandari said.

The Reserve Bank of India, which last month announced a surprise rate cut of 25 basis points after maintaining a hawkish monetary stance for 20 months, is scheduled to undertake its sixth bi-monthly monetary policy review, 2014-15 on Tuesday, February 3.

While the retail inflation slipped to 5 per cent in December, the Wholesale Price Index (WPI) inflation remained near zero level (0.1 per cent).

According to bankers and economists, there is room for further rate cut by the RBI as retail and wholesale inflation rates have remained benign.

The concerns on fiscal deficit front have also eased, especially after the government last week garnered a record Rs 22,577 crore through disinvestment of 10 per cent stake in Coal India.

January factory growth slips to 3 month low of 52.9 as new orders rise more slowly


Growth in India’s factory activity slipped in January from December’s two-year high as new orders rose at a weaker rate despite factories keeping price increases to a minimum, a business survey showed on Monday.

Cooling growth and inflation could give the Reserve Bank of India reason to cut interest rates again in the coming months but any move may depend on the government’s annual budget due on Feb. 28.

The HSBC Manufacturing Purchasing Managers’ Index (PMI), compiled by Markit, fell to a three-month low of 52.9 in January from December’s two-year high of 54.5.

It has been above the 50 level, which denotes growth, since November 2013 but missed poll expectations for a smaller drop in January, to 53.5.

“Sluggish growth and falling inflation further reinforces our view that the RBI should deliver upfront rate cuts,” said Pranjul Bhandari, chief India economist at HSBC.

Commodity prices have tumbled in recent months, Brent crude particularly, and the RBI made a surprise 25 basis point cut to its repo rate in January, putting it at 7.75 percent.

The central bank, expected to leave policy on hold at its meeting on Tuesday, has hinted there will be more easing in coming months. Bhandari expects the repo rate to sit at 7.0 percent by the end of June.

A sub-index covering new orders fell to 54.4 from 57.9 in December on weaker international demand. One of India’s main export destinations, the euro zone, is struggling to revive its economy and battling disinflation.


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