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India Manufacturing Expansion at 9-Month Low

Monetary policy tightening is stifling economic activity

As monetary policy tightening crimped economic activity in Asia's third-largest economy, manufacturing slowed in June to a nine-month low, a key index showed on July 1. The HSBC Purchasing Managers' Index (PMI), based on a survey of 500 global companies and keenly watched as a signal of industrial growth, fell to 55.3 in June from 57.5 the previous month.

"The momentum in the manufacturing sector slowed in June as sequential growth in output and new orders decelerated further," said HSBC chief India economist Leif Eskesen.

India has been battling inflation by raising interest rates. India's central bank has been one of the most hawkish, hiking rates 10 times in 16 months to tame near double-digit inflation, which is the highest in all major Asian economies.

With inflation pressures still firmly in place, Eskesen said further policy rate hikes to anchor inflation expectations were likely.

But inflation has remained elevated and some economists expect the central bank to hike rates by a further 50 to 75 basis points this year.

India's economy is forecast to grow around 8%-8.5% this fiscal year.

Copyright Agence France-Presse, 2011

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