Economic activity in India showed indications of cooling off last month as surging interest rates, acute price pressures and a declining Rupee hampered sentiment.

Smaller increases in factory orders weighed on the manufacturing sector, and although pent-up consumption had bolstered the economic recovery, rising prices and supply problems hindered the rally.

The Reserve Bank of India increased rates by 90 basis points in a bid to curb price gains. Another meeting is scheduled between 2nd and 4th August, reports Economic Times.

In addition, the Rupee edged down past 80 against the Dollar as overseas investors withdrew amid Federal Reserve policy tightening measures.

According to purchasing managers’ surveys, India’s services activity hit its highest point in over 10 years. Moreover, there was a slowdown in manufacturing growth, reducing the S&P Global India Composite PMI Index in June.

However, although demand in the services sector was bolstered, higher input costs could impact sentiment, the report adds. “Middle-to-high income households are likely to prioritise spending on contact intensive services that were avoided during the pandemic, at the cost of consumer durables,” according to ICRA’s Chief Economist Aditi Nayar.

Furthermore, India’s trade deficit widened in June to $26.2 billion, fuelling concerns about a further fall for the Rupee and a larger current account deficit. Coal, gold and petroleum products predominantly contributed to the increase in inbound shipments, whilst exports were hampered by global recession concerns.

The risk of recession is rising in Asian economies as elevated prices lead central banks to speed up rate hikes, according to a Bloomberg report.

Moreover, India’s industrial activity also gained pace. Factory output hit a one-year high of 19.6% in May compared to the previous year. The output of eight key infrastructure industries also rose 18.1%, the highest increase in over a year.