Indian factory output in January expanded at a slower pace than the previous three months with HSBC's Purchasing Managers' Index (PMI) falling to a three-month low of 52.9 last month from December's two-year high of 54.5.
PMI, compiled on a monthly basis by global bank HSBC, measures economic health of a sector based on surveys of private sector companies. A reading of above 50 on the index denotes expansion.
Consumer goods was the best performing sector for the third straight month. The latest survey points to the fact that though output growth and new business have slowed, they are still solid.
Prajul Bhandhari, chief economist for HSBC in India, attributed the slip in factory activity to consolidation after two months of impressive upticks. “New orders, both from domestic and international sources, also continued to grow, though at a slower pace than in December,” Bhandhari said.
"Sluggish growth and falling inflation further reinforces our view that the RBI should deliver upfront rate cuts. We expect the repo rate to be lowered by 75bp in the first half of 2015," he added.
With the overall economic recovery still a bit sluggish and inflationary expectation weak, the focus shifts to Reserve Bank of India, which is to announce its bi-monthly monetary policy review on Tuesday. RBI had slashed its policy rate by 25 bps last month in a surprise move.
Some analysts feel RBI might wait for the Union Budget, to be announced on February 28, before deciding on the next rate cut. Others are rooting for another rate cut on Tuesday.
(Edited by Joby Puthuparampil Johnson)