India’s services industry grew at the slowest pace in more than two years in August after the central bank’s record interest-rate increases and a weakening global economy restrained consumer demand.
The Purchasing Managers’ Index fell to 53.8 last month from 58.2 in July, HSBC Holdings Plc and Markit Economics said in an e-mailed statement today. That’s the lowest level since June 2009. A reading above 50 indicates an expansion.
Asia’s growth has slowed as a faltering recovery in the U.S. and Europe’s debt crisis hurt the region’s exports, complicating monetary policy for central banks still grappling with price pressures. India’s manufacturing grew at the slowest pace in 29 months in August, a report showed last week, while inflation has exceeded 9 percent for eight straight months even after 11 rate increases by the Reserve Bankof India since mid-March 2010.
“The lagged effects of monetary policy tightening, the elevated level of inflation and the now heightened uncertainty about the global economic outlook” led to the slowdown in services growth, Leif Eskesen, a Singapore-based economist at HSBC, said in the statement. Still, inflation “remains the dominant concern, calling for a few more policy rate hikes before the RBI can call it quits,” he said.
The Bombay Stock Exchange Sensitive Index fell 1.3 percent as of 12:01 p.m. in Mumbai. The rupee slid 0.3 percent to 45.9313 a dollar, according to data compiled by Bloomberg.
China Services
A separate HSBC-Markit report showed the Chinese services index fell to a record low of 50.6 last month as new business growth moderated, adding to evidence the economy is slowing after the government raised interest rates, curbed lending and limited property purchases.
Companies from UBS AG and Credit Suisse Group AG to Morgan Stanley have cut estimates for Indian economic expansion. UBS predicts 7.2 percent growth for 2011-2012, lower than an earlier estimate of 7.5 percent.
India’s Purchasing Managers’ Index for manufacturing fell to 52.6 in August from 53.6 in July, HSBC and Markit said Sept. 2. Service industries in the U.S. probably expanded in August at the slowest pace in more than a year, adding to concern the recovery is losing steam, a Bloomberg News survey showed before a report this week on the Institute for Supply Management’s non- manufacturing index.
Moody’s Forecast
The South Asian nation’s economy may expand 7.5 percent to 8 percent in the financial year through March while inflation may ease to about 7 percent over the year, Moody’s Investors Service Senior Analyst Atsi Sheth said in a report today.
“Given current global uncertainty, and the continuing transmission of the RBI’s tightening over the last year, the risks to both forecasts are on the downside,” Sheth said. Still, a slower growth rate in the 7 percent range wouldn’t change Moody’s assessment of the country’s sovereign credit outlook, she said.
Reserve Bank of India Governor Duvvuri Subbarao raised the benchmark repurchase rate by 0.5 percentage point to 8 percent on July 26. While threats to growth could increase if global financial risks amplify, the “immediate challenge to sustaining growth” lies in taming inflation, the central bank said Aug. 25.
“There has been a moderation in growth but it has not collapsed,” Samiran Chakraborty, a Mumbai-based economist at Standard Chartered Plc, said before the report. “Controlling inflation will take priority over growth concerns and we will see the central bank raising rates.”
Commercial loans given by banks such as ICICI Bank Ltd. rose 20.22 percent from a year earlier as of Aug. 12, according to data compiled by Bloomberg, exceeding the central bank’s 18 percent projection. Mobile-phone operators including Bharti Airtel Ltd. added 7.64 million customers in July, a 1.28 percent increase from the previous month, according to the Cellular Operators Association of India.
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