BitcoinWorld India PMI Reveals Surprising Resilience: Strong Economic Data Bolsters INR Despite Market Underperformance – Commerzbank Analysis NEW DELHI, India – March 2025: Recent Purchasing Managers’ Index (PMI) data reveals surprising strength in India’s manufacturing and services sectors, providing crucial support for the Indian Rupee (INR) despite its relative underperformance against major global currencies. Commerzbank analysts highlight this economic resilience as a fundamental pillar for currency stability amid challenging global financial conditions. This development comes at a critical juncture for emerging market economies facing simultaneous inflationary pressures and capital flow volatility. India’s PMI Performance: A Detailed Analysis India’s composite PMI reading for February 2025 registered at 58.7, marking the twenty-fourth consecutive month above the expansion threshold of 50.0. The manufacturing component reached 59.2 while services maintained robust momentum at 58.4. These figures significantly outperform the global manufacturing PMI average of 52.1 and demonstrate remarkable sectoral balance. Furthermore, the new orders sub-index climbed to 60.1, indicating sustained demand momentum that typically precedes increased production and employment. Historical comparison reveals consistent improvement from 2024 levels, when the average composite PMI stood at 57.9. The current expansion phase now represents India’s longest uninterrupted growth period since the 2008 global financial crisis. Employment indices also show gradual improvement, rising from 53.2 to 54.8 over the past quarter. This comprehensive strength across multiple PMI components provides economists with confidence in India’s economic trajectory despite external headwinds. Commerzbank’s Expert Perspective Commerzbank’s emerging markets research team, led by Senior Economist Ulrich Leuchtmann, emphasizes the structural importance of PMI data for currency valuation. “India’s PMI numbers consistently exceed expectations,” Leuchtmann notes, “creating a fundamental buffer for the rupee that many analysts underestimate.” The bank’s research indicates that every sustained 1-point increase in India’s composite PMI correlates with approximately 0.8% reduction in rupee volatility over subsequent quarters. The INR’s Performance Paradox: Strong Fundamentals Versus Market Reality The Indian Rupee has depreciated approximately 4.2% against the US Dollar year-to-date, underperforming several Asian peer currencies including the Indonesian Rupiah (-2.1%) and Philippine Peso (-3.4%). This apparent contradiction between strong domestic indicators and currency weakness presents a complex analytical challenge. Several factors contribute to this divergence, creating what economists term “the INR performance paradox.” Global capital flows have exerted significant pressure on emerging market currencies throughout early 2025. The US Federal Reserve’s maintained higher interest rates have attracted substantial capital toward dollar-denominated assets. Consequently, India experienced net portfolio outflows of $3.2 billion in January-February 2025, reversing the $4.1 billion inflows recorded during the same period in 2024. This capital movement naturally creates depreciation pressure regardless of domestic economic strength. Additionally, India’s trade deficit widened to $22.8 billion in February 2025, up from $19.1 billion a year earlier. While service exports continue growing at 14.3% year-over-year, goods imports increased 18.7% due to elevated energy prices and capital goods procurement. This fundamental imbalance creates natural demand for foreign currency that partially offsets positive PMI effects on the rupee. Comparative Currency Performance Table Currency YTD Performance vs USD Composite PMI Central Bank Policy Rate Indian Rupee (INR) -4.2% 58.7 6.50% Indonesian Rupiah (IDR) -2.1% 52.9 6.00% Philippine Peso (PHP) -3.4% 55.3 6.25% Thai Baht (THB) -5.1% 51.8 2.50% Economic Mechanisms: How PMI Data Supports Currency Valuation Purchasing Managers’ Index data influences currency markets through multiple interconnected channels. Strong PMI readings typically signal several positive economic developments that collectively support currency valuation. Firstly, robust business activity suggests increasing corporate profitability and tax revenues, strengthening fiscal fundamentals. Secondly, expansionary phases generally attract foreign direct investment seeking growth opportunities, creating structural demand for domestic currency. The transmission mechanism operates through three primary pathways: Interest Rate Expectations: Strong PMI data reduces probability of monetary policy easing Capital Flows: Expansion signals attract both portfolio and direct investment Risk Perception: Economic resilience lowers country risk premiums in currency markets For India specifically, services PMI holds particular importance given the sector’s 55% contribution to GDP. The consistent strength in services activity provides stability that manufacturing-dominated economies cannot match during global industrial slowdowns. This structural advantage explains why the rupee demonstrates relative resilience despite significant external pressures. Global Context and Comparative Analysis India’s economic performance stands in contrast to several major emerging markets facing PMI contractions. Brazil’s manufacturing PMI registered 48.7 in February 2025, while South Africa’s composite reading reached only 49.2. Among developed economies, Germany’s manufacturing PMI remained contractionary at 47.3, and Japan’s services index declined to 51.8 from 53.1 previously. This global divergence highlights India’s unique position as a growth outlier amid widespread economic softening. The Reserve Bank of India (RBI) has maintained a relatively hawkish monetary stance compared to peers, keeping the repo rate at 6.50% since February 2024. This policy stability, combined with strong PMI data, creates what Commerzbank analysts describe as a “fundamental floor” for the rupee around 83.50 against the US dollar. Historical analysis suggests that whenever India’s composite PMI exceeds 58.0, the rupee demonstrates significantly reduced volatility regardless of global risk sentiment. Historical Correlation Evidence Statistical analysis of decade-long data reveals strong correlation between PMI trends and currency performance. During periods when India’s composite PMI maintained above 56.0 for three consecutive months, the rupee appreciated against the dollar 68% of the time in subsequent quarters. Conversely, when PMI dipped below 52.0, depreciation occurred in 74% of instances. This historical relationship provides quantitative support for Commerzbank’s assessment of PMI as a crucial rupee support factor. Future Outlook and Market Implications Forward-looking indicators within the PMI survey suggest continued expansion through mid-2025. The future output index reached 64.2 in February, representing the highest reading since September 2023. Business confidence remains elevated despite global uncertainties, with 78% of surveyed firms expecting output growth over the coming year. This optimism stems from multiple factors including domestic demand resilience, government infrastructure spending, and improving global supply chain conditions. Currency market implications are significant for international investors and policymakers. The rupee’s relative undervaluation against fundamentals presents potential opportunities once global risk sentiment stabilizes. Furthermore, strong PMI data reduces pressure on the RBI for aggressive monetary easing, preserving interest rate differentials that support currency carry trades. However, analysts caution that external factors including oil price volatility and US monetary policy will continue influencing short-term rupee movements despite domestic economic strength. Conclusion India’s strong PMI performance provides essential support for the Indian Rupee despite its recent underperformance against global peers. Commerzbank’s analysis correctly identifies this fundamental-economic buffer that mitigates currency depreciation pressures from external factors. The consistent expansion across manufacturing and services sectors demonstrates structural economic resilience that many comparable emerging markets currently lack. While global capital flows and trade imbalances create short-term challenges for the INR, underlying strength in business activity establishes a solid foundation for medium-term currency stability. Market participants should monitor PMI trends as leading indicators of India’s economic health and potential rupee recovery as global conditions normalize. FAQs Q1: What is PMI and why does it matter for currency values? PMI (Purchasing Managers’ Index) measures business activity across manufacturing and services sectors. Values above 50 indicate expansion. Strong PMI signals economic growth, attracting investment and supporting currency valuation through multiple channels including interest rate expectations and capital flows. Q2: How can the INR be underperforming if India’s PMI is strong? Currency values respond to both domestic fundamentals and global factors. While strong PMI supports the rupee internally, external pressures including US interest rates, capital outflows, and trade deficits create depreciation pressure. This creates the apparent paradox of strong fundamentals alongside currency weakness. Q3: What specific PMI thresholds indicate significant economic strength? Economists generally consider composite PMI above 58.0 as indicating robust expansion, while readings between 50-55 suggest modest growth. India’s current reading of 58.7 represents substantial economic momentum that typically precedes increased employment, investment, and corporate earnings. Q4: How does India’s PMI compare with other major economies? India’s PMI significantly outperforms both emerging market peers and many developed economies. While Germany’s manufacturing PMI remains contractionary and Japan’s services index is declining, India demonstrates balanced expansion across both sectors, creating more stable economic foundations. Q5: What time horizon does PMI data predict for currency movements? PMI data typically influences currency markets over medium-term horizons of 3-6 months. While immediate reactions occur, the full impact on investment decisions, corporate earnings, and monetary policy unfolds gradually as survey data translates into actual economic activity and financial flows. This post India PMI Reveals Surprising Resilience: Strong Economic Data Bolsters INR Despite Market Underperformance – Commerzbank Analysis first appeared on BitcoinWorld .
