LowIV Macro Policy & Sovereign Debt1 October 2026, Thursday
Indian manufacturing records its strongest improvement in seven months in September
The HSBC India Manufacturing PMI rose from 52.8 in August to 55.1 in September, the strongest improvement in 7 months. Input cost inflation accelerated on the back of electronic components, pharmaceuticals and steel prices. The RBI will announce its rate decision on 7 October.
According to The Tribune, demand rose on a broad base in September, led by electronics, food, pharmaceuticals and textiles. Export orders accelerated on demand from Brazil, Europe, the UAE and the US. Employment grew at the fastest pace since May, and output posted its sharpest expansion in 4 months. The rise in finished goods inventories was the second largest in about 12 years. According to Sahi, the final figure came in below the flash estimate of 55.7.
The price picture complicates the RBI's decision. According to GoPocket, the Monetary Policy Committee will meet on 5–7 October, and the repo rate has been at 5.25% for 4 meetings. CPI inflation rose from 4.45% in July to 4.82% in August. Brent is around 107 dollars a barrel and the rupee is near 96 to the dollar. Foreign investors pulled out about 3.7 billion dollars in September.
According to Pranjul Bhandari, Chief India Economist at HSBC, manufacturers are more optimistic about the coming months and are building inventory in anticipation of sales. Input and output price increases were described as moderate relative to the historical average. On that basis, the 55.1 reading alone arguably does not require a rate hike.
Talay assessment
Bottom line
The 55.1 PMI shows that India has sustained industrial growth despite the oil shock. Combined with inflation at 4.82% and a rupee approaching 96, strong growth gives the RBI room to raise rates. The most likely path on 7 October is a 25 basis point hike or a hold with a firmly hawkish tone.
Likely effects
- Monetary policyUncertainWeeks
With growth at a 7-month high, the RBI has a weaker case for delaying an anti-inflation rate hike on growth concerns.
- RupeeNegativeWeeks
Foreign outflows of about 3.7 billion dollars in September and Brent at 107 dollars keep pressure on the currency despite strong industrial data.
- Inventory cycleNegative1–6 months
The sharp rise in finished goods inventories suggests output could slow in the coming months if expected sales fail to materialise.
Possibilities, ranked
- 1RBI hikes by 25 basis points55%
The committee raises the repo rate from 5.25% to 5.50% on 7 October, citing oil and the exchange rate.
Watch: The RBI decision on 7 October and the vote split
- 2Hawkish hold40%
The committee keeps the rate at 5.25% but shifts its stance from neutral to tightening.
Watch: Whether the stance wording changes in the RBI policy statement
- 3Dovish tone5%
The committee emphasises growth risks and gives no signal of a hike.
Watch: An RBI cut to its inflation forecast
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Manufacturing PMI (September)▲ 55.1
- Repo rate▲ 5.25%
- CPI (August)▼ 4.82%