Oct. 5 (Bloomberg) -- India’s services industry moderated in September for a second straight month after the central bank’s record interest-rate increases.
The Purchasing Managers’ Index fell to 49.8 from 53.8 in August, HSBC Holdings Plc and Markit Economics said in an e- mailed statement today. The level is the lowest since April 2009. Readings above 50 indicate expansion.
The Reserve Bank of India, which has raised borrowing costs 12 times since mid-March 2010, is nearing the end of its tightening because of signs of easing demand, Deputy Governor Subir Gokarn said last month. In the U.S., services probably expanded last month at a slower pace, deepening pessimism about the global economic outlook in the wake of Europe’s debt crisis.
“The weak global economic backdrop has also likely dampened domestic sentiments despite the somewhat limited direct spillover channels,” Leif Eskesen, a Singapore-based economist at HSBC, said in the statement. “We are getting close to the end of RBI’s tightening cycle, but we are not quite there yet.”
He expects the central bank to increase its repurchase rate by a quarter of a percentage point to 8.5 percent this year to damp inflation that Governor Duvvuri Subbarao said last week remains above the acceptable level.
The yield on the 7.8 percent securities due April 2021 rose two basis points, or 0.02 percentage point, to 8.56 percent at 12:37 p.m. in Mumbai, the highest level for benchmark 10-year notes since September 2008, according to data compiled by Bloomberg. The Bombay Stock Exchange Sensitive Index advanced 0.8 percent.
The Indian rupee strengthened 0.4 percent to 49.19 against the dollar today. The currency has weakened 9.1 percent against the dollar this year, the biggest drop in a basket of 10 Asian currencies excluding Japan’s yen, according to Bloomberg data, as investors sold emerging-market assets on concern Europe’s debt woes may undermine the global economy.
Subbarao has raised the central bank’s repurchase rate by a total of 350 basis points, the fastest round of increases since the Reserve Bank was established in 1935, Bloomberg data show.
India’s benchmark wholesale-price inflation accelerated to a 13-month high of 9.78 percent in August.
Inflation may quicken after Indian Oil Corp., the country’s biggest refiner, raised gasoline prices in September for the second time in four months. Losses from selling fuels below cost are increasing following the rupee’s decline against the dollar, according to the company’s Finance Director P.K. Goyal.
India needs to control rising prices to protect purchasing power and sustain growth, the Reserve Bank has said.
A rate of 4 percent to 6 percent is the “short-term comfort range” for inflation, Subbarao said Sept. 26. He said price increases will slow by March 2012, “but more slowly than initially expected.” Subbarao in July predicted inflation to ease to 7 percent by March 31.
“The slowdown we are seeing in economic activity is not surprising, nor a reason to panic about growth,” Eskesen said. “It’s consistent with a soft landing of the economy and a needed slowdown in growth” to tame price pressures, he said.
The Purchasing Managers’ Index for manufacturing in India grew in September at the slowest pace since March 2009, HSBC and Markit Economics said this week.
Slowing growth may hurt tax revenue and cause India’s budget deficit to exceed the government’s estimate, said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc. She expects the budget gap to widen to 5.4 percent of gross domestic product in the year ending March 31, compared with the government’s target of 4.6 percent, which would be a four-year low.
“It is difficult to maintain the ceiling,” Finance Minister Pranab Mukherjee told the Bloomberg UTV television channel in Mirati, his village in the Indian state of West Bengal, referring to the budget-shortfall goal. “I can’t say how I will be able to maintain it now without looking at the cash flows,” he said in the interview that was broadcast yesterday.
In the U.S., The Institute for Supply Management’s non- manufacturing index fell to 52.8 in September from 53.3 in August, according to the median estimate of 75 economists surveyed by Bloomberg News before a report today.
--Editors: Cherian Thomas, Ken McCallum
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