New Delhi/Mumbai: The manufacturing in January grew at its fastest pace in almost 18 months, driven by a sharp rise in new export orders that are supporting a recovery in the industrial sector, a survey showed on Monday.
Meanwhile, the Reserve Bank of India (RBI) will only adjust monetary policy outside of its quarterly review cycle under extraordinary circumstances, a deputy governor said, meaning its next move is likely to occur only in April, even as inflation mounts.
The HSBC Markit Purchasing Managers’ Index (PMI), based on a survey of 500 companies, rose to 57.7 in January, its strongest reading since August 2008 and up from 55.6 in December.
“Any lingering concern that India’s manufacturing recovery was tailing off should be well and truly put to rest by this strong release,” said Robert Prior-Wandesforde, senior Asian economist at HSBC in Singapore.
Exports continued to rebound, rising an annual 9.3% in December to $14.6 billion, their second consecutive monthly rise, although the pace of annual growth was slower than the 18.2% registered in November. The export figure, released on Monday, was initially revealed by the commerce and industry minister Anand Sharma on 11 January.
Imports increased by 27.2% in December from a year earlier to $24.75 billion while the trade deficit shrunk by a little over 28% to $76.24 billion for the April- December 2009 period.
The benchmark 10-year bond yield closed on Monday at 7.63%, rising after central bank governor Duvvuri Subbarrao said yields would rise if government borrowing in the next fiscal year exceeds central bank expectations. Stocks ended flat.
Off-cycle policy move unlikely
On Friday, the RBI raised the cash reserve ratio (CRR) for banks by a higher-than-expected 75 basis points in an effort to soak up excess liquidity, and ramped up its forecast for GDP growth in the current fiscal year through March to 7.5% from its earlier forecast of 6%.
Some analysts had predicted the central bank’s next move would be a rate hike before its next review, scheduled for 20 April, as inflation rises and economic recovery gains strength.
But on Monday, RBI’s deputy governor Subir Gokarn said that an off-cycle policy change would come only in reaction to unforeseen circumstances. The bank’s next policy review is set for 20 April.
“A mid-policy action is really in response to a completely unanticipated event,” he said during a conference call from Chennai.
“We will watch how inflation moves in the next few months. The way we are seeing inflation pressure pan out, we see inflation at 8.5% by March and that may start to moderate,” he said.
On Friday, the RBI lifted its forecast for wholesale price index (WPI) based inflation at the end of the fiscal year in March to 8.5% from its earlier target of 6.5%, before it begins to moderate starting in July.
Some economists predict WPI could hit double digits by the end of the current fiscal year.
The HSBC Purchasing Managers’ Index mirrored India’s positive export performance, with a more-than 5 point jump in the new export orders component, a sign that growth in manufacturing sector is increasingly fuelled by exports.
Month-on-month growth in December exports may have been slowed by the effect of pre-Christmas bookings wearing off, as well as a rupee that appreciated by 3.4% against the dollar in the October-December quarter.
Still-sluggish global demand could also weigh on continued expert momentum.
“Exports are not yet on a firm basis and it will be some time before it stabilizes,” said DH Pai Panandikar, head of RPG Foundation, a private think tank.
While oil imports were up 42.8% after crude prices shot up from mid December, non-oil imports also climbed by 22.4% in December indicating robust economic activity picking up steam.