Why India's manufacturing activity hit 3-month low in May
What's the story
India's manufacturing sector witnessed a slowdown in May, with the HSBC India Manufacturing Purchasing Managers's Index (PMI) falling to a three-month low of 57.6 from April's 58.2.
Despite the slowdown, job creation hit a record high as permanent hiring rose at its fastest pace ever.
The slowdown is attributed to softer demand, price pressures, and geopolitical tensions.
Hope
Manufacturers remain optimistic
To note, the expansion in new orders—a key indicator of demand—remained historically strong, backed by robust domestic consumption and export sales. Manufacturers remain optimistic about future prospects for the industry.
Employment boost
Job creation and cost pressures
The HSBC India Manufacturing PMI survey revealed that job creation in the sector hit a record high, with permanent hiring rising at its quickest pace ever.
However, cost pressures also rose during May, with input price inflation hitting a six-month high.
Manufacturers passed these costs onto buyers, resulting in output price inflation among the highest levels seen in over 11 years.
Policy implications
RBI's monetary policy decisions amid rising price pressures
The growing price pressures in India's manufacturing sector could complicate the monetary policy decisions for the Reserve Bank of India (RBI).
This comes as the central bank has already slashed its key repo rate by a cumulative 50 basis points this year, with overall inflation remaining below RBI's 4% target.
A Reuters poll last week indicated that RBI is tipped to cut interest rates on June 6 and again in August.