Strong demand boosts India’s manufacturing PMI to 3-month high

India’s manufacturing activity, measured by the Purchasing Managers’ Index (PMI) rose to three-month high, boosted by strong consumer demand. However, firms barely raised prices, a private survey showed, leaving the door open for another rate cut by the central bank this year.

The Nikkei/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 51.7 in June from May’s 50.7, its sixth month above the 50 mark that separates growth from contraction after it fell below that level in December for the first time in more than two years.

While retail inflation hit a near two-year high in May, the survey’s output prices sub-index fell to a three-month low of 50.1 in June versus 50.5 the previous month, as input costs rose at a weaker pace. Further, there was also broadly no change to manufacturing employment in India during June, the survey showed.

"The domestic market continues to be the main growth driver, as the Indian economic upturn provides a steady stream of new business," said Pollyanna De Lima, Economist, Markit.

According to a recent poll by Reuters, Reserve Bank of India Governor Raghuram Rajan is expected to deliver another rate cut before his term ends in September this year. Governor Rajan has refused to accept a second term, even if he is offered one. The RBI has kept rates on hold, after cutting in April, to 6.5 percent.

According to recent forecasts, rains are expected to be above normal this year, which would keep the prices under control and give the government some room to focus on key economic reforms in tandem with low interest rates.

"Weather conditions are highly favorable for Monsoon to take a big leap and cover entire Punjab, Haryana, Delhi, most parts of Gujarat and Rajasthan barring few parts of West Rajasthan," Skymet Weather said in its report.