Strong domestic demand pushes up factory growth

RBI may get encouraged by good output and reduce interest rates

GN Bureau | June 1, 2015


#manufacturing   #HSBC   #manufacturing  

Riding on domestic demand, Indian manufacturing activity rose at its fastest pace in four months in the month of May, a business survey found on Monday.

The figures are expected to give another boost to a possible central bank interest rate cut. The Reserve Bank of India is holding a policy review on Tuesday.

The HSBC Manufacturing Purchasing Managers' Index, compiled by Markit, rose to 52.6 in May from April's 51.3, smashing the 51.2.

Any reading above 50 indicates expansion and May was the nineteenth straight month of industry growth. An index monitoring new business, which highlights underlying demand, jumped to 54.3 in May from 51.9.

Firms reduced staffing levels for the third month out of the last four in May. What may also cause the RBI some concern is the rate of price rises - although April inflation was well within the upper-end of the central bank's target.

The RBI is widely expected to cut its key interest rate by 25 basis points to 7.25%, when it meets on Tuesday.

Indian GDP data, which released on Friday, showed the economy grew 7.3% in the fiscal year 2014/15, and expanded faster than China for a second consecutive quarter.

While that seems healthy there are nagging doubts over the reliability of the data. Many economists believe that changes made earlier this year to the way government statisticians calculate GDP may have distorted the macroeconomic view.

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