Factory output growth weakest in over 4 years, RBI rate cut seen

HSBC PMI falls for the second straight month in April, dips to 51

India's factories lost momentum in April as output grew at its weakest pace in over four years, but a jump in export orders augured well for the coming months, a survey showed on Thursday.

 

The HSBC Manufacturing Purchasing Managers' Index (PMI), fell for the second straight month in April, dipping to 51.0 from 52.0 in March. The reading for April was the lowest since November 2011.

 

While not regarded as a major policy guide the survey will harden already strong expectations that the Reserve Bank of India will cut interest rates at a policy review on Friday.

 

The latest PMI showed inflation pressures ebbed further last month with both costs of raw material and prices charged rising at a slower pace than March.

 

"Encouragingly, input and output price inflation eased. With the growth momentum slowing and inflation receding, the RBI is likely to cut the policy rate this week," said Leif Eskesen, chief India economist at HSBC.

 

A Reuters poll showed the RBI is expected to make its third 25 basis point cut this year, lowering its key repo lending rate to 7.25%.

 

The RBI has been reluctant to ease monetary policy more aggressively because of high inflation, a wide current account deficit, and a still weak currency.

 

The PMI index, which gauges business activity in Indian factories but not its utilities, has held above the watershed 50 level that divides growth from contraction for over four years.

 

Asia's third largest economy has been hard hit by weak demand for its goods and services, and is struggling to regain momentum with growth slowing to a decade-low of 5%.

 

Having launched a series of reforms late last year, the minority government of Prime Minister Manmohan Singh is struggling to push through more, but as yet there is little sign of a revival in investment ahead of a national election due next year.

 

The factory output sub-index fell close to stall speed at 50.2 in April from 51.6 the previous month. But, a pick up in the export orders index suggests factories could step up production in coming months.

 

"Manufacturing activity lost momentum again in April, with output growth slowing further on the back of a deceleration in domestic orders," Eskesen said.

 

The euro zone, India's largest trading partner, has been ravaged by a sovereign debt crisis that has, on and off, threatened to push the global economy into a new downturn.