India's manufacturing sector output grew at the fastest pace in five months in April, spurring concern that the Reserve Bank of India (RBI) will continue to gradually tighten its monetary policy to rein in stubbornly high inflation.
The Purchasing Managers Index (PMI) rose to 58 from 57.9 in March, HSBC Holdings Plc and Markit Economics said in a statement today.
A number above 50 denotes growth while a reading below it implies contraction.
The RBI is most likely to lift its benchmark repurchase rate (repo rate) to 7% from 6.75% at present at tomorrow's policy meeting. There are a few who expect a larger 50 bps increase.
The RBI has boosted policy rates by 200 basis points since mid-March 2010 in eight 25 bps moves.
India's WPI-based inflation rose to 8.98% in March, more than the RBI's 8% estimate.
The strong manufacturing PMI numbers are testament to the resilience of growth in the face of policy tightening and high inflation, Leif Eskesen, Singapore-based chief economist at
HSBC, said in todays statement.
Growth is holding up well but this is also pushing up inflation. The RBI tightening will have to continue, Eskesen added.