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Fuel-driven rise in headline WPI inflation will be short-lived The faster-than-anticipated acceleration in headline wholesale price inflation in March was driven by a surge in fuel inflation, but we think it should fall back soon enough. And with the …
15th April 2021
Rising headline inflation won’t trigger rate hikes India’s consumer price inflation jumped to a four-month high in March as food inflation accelerated. But we doubt that the headline rate will continue rising for much longer and, with the economic …
12th April 2021
Talk of QE misses the bigger picture Much of the commentary following the RBI’s policy meeting this week – in which policy rates were kept on hold – has been on the announcement of a new programme (the so-called G-SAP) through which the central bank will …
9th April 2021
Overview – The economic recovery has progressed well over recent months and as things currently stand growth is on course to be stronger than the consensus expects this year. But the recent surge in virus cases is a significant downside risk to the …
8th April 2021
The MPC voted to keep the repo and reverse repo rates on hold today amid the surge in COVID-19 cases, and committed to keeping policy “accommodative to support and nurture the recovery”. Given this, we continue to think that markets are too hawkish in …
7th April 2021
Strong Q1, but outlook deteriorating India’s PMI readings for March indicate that the economic recovery continued to progress well at the end of Q1. But with virus cases surging and new restrictions quickly coming onto the agenda, the outlook has taken a …
Manufacturing outlook takes a turn for the worse India’s manufacturing PMI for March indicates a continued rebound in the sector last month, but that has already been overtaken by more recent events. In particular, the renewed surge in new COVID-19 cases …
5th April 2021
The rise in new COVID-19 infections to a six-month high yesterday has predominantly been limited to one state. But there are signs that the virus is spreading rapidly to other parts of the country and, with the vaccine rollout proving slow-going, the …
1st April 2021
RBI will continue to target 4% headline inflation Economic Affairs Secretary Tarun Bajaj yesterday confirmed that the RBI’s current inflation target of 4% headline CPI inflation, with a “tolerance band” of 2-6%, will be maintained for the next five years. …
Industrial outlook takes turn for the worse Growth in India’s core infrastructure industries slumped in February and, with the broader industrial outlook taking a turn for the worse as new COVID-19 cases mount, the RBI is likely to keep policy very …
31st March 2021
Several EM central banks have hiked policy rates in recent weeks… …but risks to India’s economic recovery mean the RBI is unlikely to follow suit Inflation target likely to remain unchanged for the next five years EM monetary policy has turned decidedly …
29th March 2021
Bad debts set to pile up The Supreme Court this week lifted its ban on banks classifying delinquent loans as non-performing, reversing a measure that was introduced seven months ago. This is the last of the significant extra-ordinary banking sector …
26th March 2021
Parliament’s approval this week of a loosening of restrictions on FDI in the insurance sector will not have a significant macro impact, but it provides reassurance that FDI reform remains a priority for the government. That bodes well for India’s external …
25th March 2021
A rise in headline consumer price inflation over the coming months will do little to temper growing market expectations of imminent rate hikes. But it will largely be driven by fuel price inflation, which the RBI should look through. Further ahead, a …
24th March 2021
Persistent rise in infections could dent the recovery New daily COVID-19 cases in India have been rising over recent weeks, and on Thursday reached their highest level since early December. For now at least, this doesn’t appear to be a major threat to the …
19th March 2021
Foreign investor appetite for Indian assets has faded in recent weeks. Inflows into the equity market have waned, while foreigners have turned into net sellers of Indian debt. (See Chart 1.) This chimes with movements in portfolio flows in other major …
18th March 2021
The narrowing in India’s goods trade deficit in February is likely to soon reverse as the recovery in domestic demand and oil prices pushes up imports. But while this means that India’s recent current account surplus is unlikely to last for long, the …
16th March 2021
Rise in headline WPI inflation won’t trigger a rate hike The acceleration in headline wholesale price inflation in February to a two-year high will do little to dampen growing market expectations of rate hikes in the very near future. However, we still …
15th March 2021
Rebound in headline inflation won’t trigger a rate hike Headline CPI inflation rebounded in February, but we doubt that this will lead to a rate hike at the upcoming MPC meeting in April. The renewed contraction in industrial output in January clearly …
12th March 2021
Rate hikes still a long way off Financial markets appear increasingly convinced that the RBI is on the cusp of fairly aggressive monetary tightening. A cumulative 100bp increase in interest rates this year is now being discounted, with the first rate hike …
The upcoming state elections in India will have an important bearing on economic policy at the local level. But perhaps more significant, the outcome of the state elections could be important in determining whether Prime Minister Modi’s BJP will be able …
10th March 2021
Upgrading our forecast for GDP growth in 2021 India’s financial markets have not been immune from the turbulence in global markets over the past couple of weeks, but the latest economic data have been largely positive. GDP data for Q4 2020 (Q3 of FY20/21) …
5th March 2021
PMIs point to a continued economic recovery India’s PMI readings for February suggest that output has rebounded further above pre-virus levels so far this quarter. With fiscal policy turning more supportive and new virus cases remaining low, the recovery …
3rd March 2021
Manufacturing sector holding up well India’s manufacturing PMI reading was virtually unchanged in February and remains consistent with a strong recovery in the sector so far this quarter. That should continue over the coming months, helped by looser …
1st March 2021
GDP returns to pre-virus level India’s Q4 GDP data confirm that the economy continued to perform well at the end of 2020 and the outlook for this year has improved too as fiscal policy has been loosened substantially. Even so, we doubt that GDP will be …
26th February 2021
Should the RBI target core inflation? Under current law, India’s government issues the RBI with an inflation target every five years. The current target of 4% headline CPI inflation, with a “tolerance band” of 2-6%, runs until the end of next month. We’ve …
Indian GDP data due to be released on Friday are likely to show only a small contraction in annual growth in Q4 2020, and high-frequency indicators point to a relatively strong start to 2021. Indeed, our in-house mobility tracker suggests that activity …
24th February 2021
The minutes of the Reserve Bank’s February policy meeting – in which interest rates were left unchanged – show that the MPC remains cautious on the inflation outlook but that it is also committed to keeping policy accommodative to ensure that the economic …
23rd February 2021
Investment recovering, but headwinds remain The breakdown of the industrial production data for December showed a continued rebound in output of capital goods. On past form, this recovery suggests that our initial estimate that investment contracted by …
19th February 2021
The narrowing in India’s goods trade deficit in January is likely to soon reverse as the recovery in domestic demand and oil prices pushes up imports. But while this means that India’s recent current account surplus is unlikely to last for long, we still …
16th February 2021
Low inflation means RBI can keep policy loose CPI inflation dropped back to a fraction above the RBI’s long-term target in January, its lowest since 2019. It should remain well inside the target band over coming months as easing supply constraints offset …
12th February 2021
RBI commits to low rates and ramps up OMOs… Indian yields rose significantly in the aftermath of the unexpectedly-accommodative Union Budget announcement but developments since have helped to reduce some of the upward pressure. Admittedly, the RBI kept …
11th February 2021
Almost a month since the start of India’s vaccination drive, it appears highly unlikely that the government will meet its target of inoculating 300m people by August. For now, we maintain our assumption that it will take much longer to vaccinate the most …
10th February 2021
The MPC voted to keep the repo and reverse repo rates on hold today but committed to keeping policy “accommodative” for the foreseeable future. We no longer expect any more rate cuts, but markets are too hawkish in expecting modest rate hikes within the …
5th February 2021
Banking reforms back on the agenda The dust is settling on the Finance Ministry’s unexpectedly accommodative Union Budget for FY21/22 delivered on Monday. We looked at various aspects of the announcement here and here . One topic mentioned by FM Nirmala …
PMIs point to decent start of 2021 India’s PMI readings for January suggest that the economy is still rebounding and, with fiscal policy finally being loosened significantly, a decent recovery over the coming quarters looks a stronger bet now than it did …
3rd February 2021
By bringing large off-balance sheet expenditures back into official spending plans and setting more realistic targets for revenues, the Finance Ministry has presented a more credible Union Budget for FY21/22 than has been the case for several years. While …
2nd February 2021
India’s Finance Ministry set aside the desire for near-term fiscal consolidation and today announced significant stimulus in the FY21/222 union budget. That should support the economic recovery over the coming quarters, albeit at the cost of putting …
1st February 2021
PMI rises but policymakers can still do more India's manufacturing PMI reading edged up in January but, given signs elsewhere that the industrial recovery has lost a bit of steam, policymakers should still be aiming to provide support to the economy. Like …
Industrial recovery lost some steam in Q4 India’s core infrastructure industries index didn’t improve much in December, which suggests that the industrial rebound lost some steam in Q4 and underscores the need for policymakers to provide further support …
29th January 2021
Finance Ministry faces a tough balancing act For India watchers, next week will be one of the most important of the year. On Monday, Finance Minister Nirmala Sitharman will unveil the Union Budget for FY21/22. We published a full preview of the Budget …
Consensus is for rates to remain on hold next week But we think sharp drop in inflation could trigger a 25bp policy rate cut We also doubt expectations of rate hikes over the next 12-18 months will materialise Financial markets and analysts appear …
27th January 2021
The Finance Ministry faces a tough balancing act in the Union Budget for FY21/22 as it aims to stabilise the public finances while avoiding economically and politically-damaging spending cuts. The most likely outcome is that it will set ambitious revenue …
25th January 2021
Rupee to only appreciate slightly against dollar The RBI’s foreign exchange reserves climbed to a record high of $586bn in the first week of January, from $581bn at the end of 2020 and $461bn a year ago. (See Chart 1.) Recall that the recent sharp …
22nd January 2021
The Reserve Bank of India (RBI) is set to tighten regulation of non-bank financial companies (NBFCs) over the coming weeks. Alongside stricter audits of many smaller lenders, the RBI is likely to require NBFCs to maintain larger buffers of liquid assets. …
21st January 2021
The widening in India’s goods trade deficit to an 18-month high in December still has further to run, particularly as a recovery in both domestic demand and global oil prices pushes import values higher. That would be enough to tip India’s recent current …
18th January 2021
Long-term investment outlook still challenging Industrial production data released this week showed a renewed y/y contraction in output in November, but there are some positive to be taken from the breakdown. In particular, the capital goods output …
15th January 2021
Drop in food inflation causes headline WPI to fall The drop in headline wholesale price inflation in December was driven by a sharp fall in food inflation, while core inflation rose. Nevertheless, taken alongside the sharp drop in CPI inflation last …
14th January 2021
India’s inflation drop raises chances of rate cut The drop in India’s consumer price inflation in December strengthens our view that monetary policy will remain very loose for a long time to come, and could even be enough to trigger a policy rate cut at …
12th January 2021
Overview – The drop in new COVID-19 cases and the resulting scaling back of containment measures in India has provided a much-needed boost to the economy, and an effective vaccine will further support the recovery in 2021 and 2022. But even widespread …
11th January 2021
