India PMI Expands at Fastest Pace in 6 Months

By Unni Krishnan - Jan 2, 2012 4:10 PM GMT+0700

India’s manufacturing grew at the fastest pace in six months, stoking inflationary pressure and reducing scope for the central bank to cut interest rates.

The Purchasing Managers’ Index rose to 54.2 in December from 51 in November, HSBC Holdings Plc and Markit Economics said in an e-mailed statement today. A number above 50 indicates expansion.

“Manufacturing activity rebounded on the back of increases in output and new orders,” Leif Eskesen, a Singapore-based economist at HSBC, said in the statement. “However, inflationary pressures remain firm leaving no room for the RBI to ease its tight monetary policy stance in the near term.”

Manufacturing in India and China recovered in December, indicating Asia’s fastest-growing major economies have so far withstood the fallout from Europe’s debt crisis. Domestic demand helped the PMI in India to bounce back, HSBC and Markit Economics said, adding that growth will be constrained by higher borrowing costs and the global economic weakness.

The yield on the 8.79 percent notes due November 2021 fell 14 basis points, or 0.14 percentage point, to 8.43 percent as of 2:06 p.m. in Mumbai. The BSE India Sensitive Index, which lost a quarter of its value in 2011, was little changed at 15,460.68.

Rupee Drops

India’s rupee, Asia’s worst-performing currency last year, weakened 0.4 percent to 53.27 against the U.S. dollar.

India’s central bank last month kept rates unchanged for the first time in eight meetings as Europe’s debt woes threatens to curb exports. The Reserve Bank of India’s repurchase rate is 8.5 percent after 13 increases since mid-March 2010.

In the Indian PMI data, measures of output, employment, orders, and export orders all rose, HSBC said.

In China, the PMI was at 50.3 in December from 49 in November, the Beijing-based logistics federation said in a statement yesterday.

India’s inflation readings in December were “not encouraging,” according to the statement from HSBC and Markit Economics. Input price increases remained “well above historical levels” and the index of output prices rose to 56.2 from 55.4 in November, the statement showed.

India’s central bank may reverse its rate increases to boost growth as inflation is showing signs of easing, the British Broadcasting Corp. reported citing Governor Duvvuri Subbarao.

Different Approach

The central bank’s approach to managing inflation and growth will be different in 2012, the BBC quoted Subbarao in an interview posted on its website today.

India’s exports in November rose at the slowest pace in two years, gaining 4 percent to $22.3 billion, according to a statement from the commerce ministry today. Imports rose 25 percent to $35.9 billion, causing a trade deficit of $13.6 billion in the month.

India’s economic growth slowed to 6.9 percent in the quarter ended Sept. 30, the weakest pace in more than two years.

India’s inflation slowed to a one-year low of 9.11 percent in November from 9.73 percent in October. That is still higher than the levels in Brazil, Russia and China, which including India, make up the so-called BRIC nations. Consumer prices rose 6.6 percent in Brazil and 4.2 percent in China in November and 6.1 percent in Russia last month.

Subbarao said the fall in the rupee, which dropped about 16 percent in 2011, may add to inflation, according to the interview with the BBC.

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net