India factory growth accelerates in April on strong domestic demand

Indian factory growth accelerated in April on strong domestic demand and output, a business survey showed on Wednesday, while price pressures were subdued in a comforting sign for the central bank as it seeks to temper inflation without hurting the economy.

The Nikkei Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, rose to 51.6 last month from March’s 51.0, as predicted by a Reuters poll and above the 50-point mark that separates growth from contraction for a ninth straight month.

“The Indian manufacturing economy started the quarter on a slightly stronger footing as growth picked-up from March’s five-month low, buoyed by stronger demand conditions,” Aashna Dodhia, an economist at IHS Markit, said in a release.

“Encouragingly, PMI data highlighted inflationary pressures moderated for the second month in a row, with input cost and output charge inflation at the weakest since September 2017 and July 2017 respectively.”

While India’s retail inflation has eased this year and hit a five-month low of 4.28 percent in March it remained above the Reserve Bank of India’s (RBI) medium-term target of 4 percent.

Inflation is forecast to average 4.7 percent in the fiscal year ending next March, and 4.9 percent the following year, a separate Reuters poll showed.

The RBI has kept interest rates steady after a 25 basis-point cut to the repo rate in August last year. It is forecast stand pat on policy until the second half of next year.

In the latest survey the new orders sub-index, a proxy for domestic demand, rose to 52.0 in April, encouraging firms to increase output and resume hiring.

Optimism about future output in April was the strongest since July 2017. That suggest Asia’s third largest economy is in good heart as disruptions from a shock ban on high-value currency notes in November 2016 and the chaotic launch of a goods and services tax (GST) in July fade.

India will claim top spot as the world’s fastest-growing major economy this year, but rising trade tensions between the United States and China may restrain growth, according to a Reuters poll.

Export orders slipped to a 5-month low in April, the PMI survey showed.