A day ahead of RBI’s much-anticipated monetary policy, review, latest data showed growth in India’s manufacturing activity slipped to a three-month low in January, triggering hopes of an interest rate cut.
Besides, growth in eight core industries slowed to a three-month low of 2.4% in December, pulled down by contraction in crude oil, natural gas, fertiliser and steel.
In a surprise move, RBI had cut the repo rate — its key lending rate — by 0.25 percentage points on January 15 and industry groups have been rachetting up their demand for a repeat action.
The repo rate, the rate at which RBI lends to commercial banks, now stands at 7.75%. A lower repo brings down banks’ borrowing costs, which in turn, prompts them to slash interest rates for final home, auto and corporate borrowers.
According to the monthly HSBC-Markit survey released on Monday, India’s headline Purchasing Managers’ Index — a composite gauge of manufacturing business conditions — fell from December’s two-year record of 54.5 to 52.9 in January. A figure above 50 indicates the sector is expanding, while a reading below indicates contraction.
“New orders, both from domestic and international sources, continued to grow, though at a slower pace. New orders were strongest in the consumer goods sector,” HSBC’s chief India economist Pranjul Bhandari said.