India's service industry returned to modest growth rate in July

  • Reuters, Bengaluru
  • Updated: Aug 05, 2015 16:27 IST

India's dominant service industry sector returned to a modest growth rate in July, a private survery revealed on Wednesday, but the improvement is unlikely to change expectations that the Reserve Bank could cut interest rates again before the year-end.

For the first time in three months, the Nikkei Services Purchasing Managers' Index, compiled by Markit, nudged above the 50 mark that separates growth from contraction, coming in at 50.8 in July. It was 47.7 in June.

The Reserve Bank of India kept its policy rate on hold at 7.25% on Tuesday, while leaving the door open for further easing depending on the inflation outlook.

But as economic growth prospects have dimmed in Asia's third-largest economy due to delays in key reforms, the RBI is predicted to make its fourth cut to interest rates this year in the last few months of 2015.

"While it was welcome news to see a return to growth of activity in the Indian service sector during July, we are still looking at a modest improvement at best," said Andrew Harker, senior economist at survey compiler Markit.

"When looking at the manufacturing and service sectors together, weak inflationary pressures and modest growth tend to support a more accommodative monetary policy environment."

A sister survey on Monday showed manufacturing sector growth was also fairly modest.

Still, firms reported they were hiring more workers as new orders also returned to growth after two months of decline, contrasting with continued job shedding at factories.

The services employment sub-index reached a two-year high of 51.4 in July, up from 50.4.

Services companies continued to raise prices, though the rate of change was the weakest since April.

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