HSBC's manufacturing PMI, the sector barely kept its head above water in May following a fall in output and feeble domestic order growth. Encouragingly, orders from abroad picked up pace. Despite the slowdown, businesses struggled to meet orders as power outages hampered output. Fortunately, inflation cooled further led by weaker commodity prices and diminished pricing power. With growth moderate and inflation easing, the RBI may fire another salvo at the June meeting, although the room to cut is practically non-existent.
Implications
The manufacturing sector has entered a soft patch. Domestic orders are tailing off and output remains constrained by frequent power outages. Oddly, the only bright spot has been a sustained recovery in export orders, notwithstanding the softer global economic backdrop.
With growth moderate by Indian standards and inflation easing, the RBI may fire another salvo in June. However, the room for monetary policy easing is severely limited in the supply constrained economy, which still struggles with high retail inflation and a wide current account deficit.
