India’s manufacturing PMI eased to 51.7 in August from 52.3 in July, reversing gains made over the past two months, notes the research team at Nomura.

Key Quotes

“Domestic demand moderated (new orders fell to 52.5 from 53.6 in July), while external demand improved (export orders rose to 53.9 from 52.9 in July), possibly supported by recent rupee depreciation.”

“Surprisingly, the weaker rupee did not significantly impact input prices, which eased to 55.3 from 56.4 in July. Output prices also moderated, although margins (output price/input price) inched up slightly.”

“The weaker rupee is not yet reflected in higher input costs, although this may become visible with a lag. However, we expect weaker demand to at least partly offset any increase in costs.”

“Given this trajectory, we expect the Reserve Bank of India to pause in its October policy review meeting (65% probability of no change; 35% chance of a hike), after delivering two consecutive hikes for a cumulative 50bp.”