100-word take: Weak December Manufacturing PMI another reason for RBI to cut rates

RBI

The Nikkei India Manufacturing Purchasing Managers Index (PMI), a seasonally adjusted gauge of private sector activity in Indian manufacturing, came in at 53.2 in December, a bit lower than the reading of 54 in November.

A reading above 50 denotes an expansion from the previous month, while one below 50 indicates a contraction. At 53.2 therefore, the manufacturing sector expanded at a decent clip in December, contributing to the highest quarterly average since Q3 FY 2012. In short, growth in manufacturing continues to be strong.

Even more interesting is the fact that the Output Prices sub-index came in at 49, which indicates prices have fallen from the previous month, the first time this has happened since July 2017. One reason for low output prices was because input cost inflation moderated to a 34-month low in December.

As Pollyanna De Lima, Principal economist at IHSMarkit said, ‘These signs of easing inflationary pressures indicate that we’re likely to see the RBI adopt an accommodative monetary policy stance in early 2019.’