The manufacturing activity of India expanded at the fastest pace in five years in December, a private sector survey showed on Tuesday.
Tuesday’s data showed that Indian business continues to recover but also highlights risks that rising price pressures will keep the Reserve Bank of India (RBI) from slashing interest rates further.
The Nikkei Manufacturing Purchasing Managers’ Index INPMI=ECI, compiled by IHS Markit, rose to 54.7 in December from November’s 52.6, marking its fifth straight month above the 50 level that separates expansion from contraction, reports Reuters.
“India’s goods-producing economy advanced on its recovery path, with operating conditions improving at the strongest pace since December 2012,” said Aashna Dodhia, an economist at IHS Markit.
“Strong business performance was underpinned by the fastest expansions in output and new orders since December 2012 and October 2016, respectively. Anecdotal evidence pointed to stronger market demand from home and international markets.”
The country’s manufacturing sector witnessed higher payroll figures in December while the rate of job creation rose to its highest since August 2012.
The latest survey showed the new orders sub-index, a proxy for domestic demand, also rose to 56.8 in December, the highest since October 2016.
Foreign demand also expanded at its quickest pace since June.
India’s retail inflation in November breached the central bank’s medium-term target of 4.0 per cent, which could put pressure on it to raise policy rates in the coming months.
Minutes from the RBI’s December meeting show bank members are becoming increasingly concerned about inflation.