India’s manufacturing activity declined at a faster pace in July, a survey of Purchasing Managers’ Index (PMI) showed. According to the study, India’s manufacturing PMI fell from 47.2 in June to 46.0 in July. India’s manufacturing PMI has been below the 50-point threshold separating expansion and contraction, in four straight months, the longest since March 2009 in the midst of the global financial crisis.
The deeper factory slump in July highlighted the impact of the rising COVID-19 cases which prompted renewed lockdown measures. The survey showed persistent weakness in new orders and output, although factories lowered prices last month, which led to a reduction in their workforces. This indicates the chance that inflation will ease after breaching above the central bank’s target of 2-6% in June.
Easing inflation will provide the Reserve Bank of India with more room to ease policy further. Since March, the RBI has slashed its repo rate by 115 bps. The central bank is expected to deliver as much as 50 bps reduction in the benchmark interest rate. A prospect of more monetary stimulus boosted business optimism about the coming 12 months to a five-month high in July, the PMI survey showed.
