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The MPC is likely to use the recent confirmation that GDP growth slowed in Q4 and the current low rate of headline inflation as justification for another interest rate cut at the conclusion of its policy meeting on Thursday 4th April. But with core …
27th March 2019
The extremely low share of women in India’s formal workforce has become a talking point in the election campaign. It has far-reaching ramifications, including by keeping the economy much smaller than it would otherwise be. Unfortunately, the policy …
22nd March 2019
The 3% rise in the rupee against the US dollar so far in March has left it at its strongest rate since August, and means it has outperformed all other major EM currencies this month. This is related in part to recent opinion polls showing that the ruling …
20th March 2019
India’s monthly goods trade deficit narrowed to a 17-month low in February and, with oil prices set to remain low, we think the shortfall will remain small over the coming months. In turn, that should help to keep the current account deficit at …
18th March 2019
India’s economic diversity and the decentralisation of policymaking power mean that investors should keep an eye on developments at the state as well as the national level to understand trends in the economy. To this point, while a report from the RBI …
15th March 2019
The slight rebound in February’s wholesale price inflation is unlikely to prevent the RBI from cutting rates again next month. However, there is good reason to think that underlying inflation will rise over the coming months, which would raise concerns …
14th March 2019
February’s rise in inflation probably won’t dissuade the RBI from cutting policy rates again next month. But the latest data underline the risks from the more dovish stance that the RBI has adopted under Governor Das, with core inflation still worryingly …
12th March 2019
The decision by the US to scrap the preferential trade status granted to several Indian products has grabbed headlines this week. But the direct impact of the measures will be small. India’s exports to the US last year were worth just 2% of GDP. …
8th March 2019
Headline CPI inflation will have remained low in February even if, as we suspect, it rose a touch due to higher food inflation. As such, the RBI will almost certainly cut policy rates again, perhaps as soon as at its next meeting in April. But with core …
6th March 2019
Recent moves to tighten restrictions on foreign e-commerce firms are more a reflection of the government wanting to boost popular support ahead of the general election than a fundamental shift in attitudes towards FDI. If the Modi government wins the …
4th March 2019
India’s manufacturing PMI surged to a 14-month high in February and once again bucked the trend across most of Asia. Looking ahead, prospects for local manufacturers remain bright over the near term. … Manufacturing PMI …
1st March 2019
Developments in Kashmir this week have left tensions between the Indian and Pakistani government at their most fraught in years, but the economic and market impact of the crisis is likely to be small. … Limited economic and market fallout from …
Indian GDP data show that although the economy slowed in the final quarter of last year, it is still continuing to grow at a decent pace. The economy should perform relatively well in the first half of 2019, supported by looser fiscal policy ahead of the …
28th February 2019
The fall in Pakistan’s stock market today is the first sign that investors are starting to become concerned about the escalating crisis in Kashmir. The most likely outcome is that tensions are dialled back over the coming days, but even a period of …
27th February 2019
There is little evidence to suggest that inflation in the services sector is being boosted by “one-off” factors, as has been suggested by several MPC members. Instead, it appears to be a reflection of strong domestic demand, adding to evidence elsewhere …
26th February 2019
The minutes of the Reserve Bank’s 7 th February policy meeting – in which rates were cut – reveal a significant difference of opinion between MPC members on the outlook for core inflation. We share the view of the committee’s two dissenters that elevated …
22nd February 2019
Measures to loosen both fiscal and monetary policy announced this month could provide a small boost to demand in the near-term. The finance ministry made a clear bid in the interim budget to shore up support ahead of the general election with plans to …
20th February 2019
India’s merchandise trade deficit widened in January, but with oil prices likely to fall over the coming months, we think the shortfall will narrow again before long. In turn, that should help to keep the current account deficit at sustainable levels. … …
18th February 2019
Recent developments have again cast a spotlight on the accuracy of Indian data, but unfortunately, we doubt that the formation of an independent regulator, that some have called for, would lead to any great improvement. Meanwhile, we think that the drop …
15th February 2019
The drop in headline wholesale price inflation in January was broad based, but underlying inflation is likely to rise again before long. This underlines why we think the RBI’s recent rate cut, as well as others that look set to follow, will prove to be a …
14th February 2019
Headline consumer price inflation was low and virtually unchanged in January but, more importantly, core inflation remained elevated. The RBI suggested last week that the core rate has been boosted by temporary factors but there is little support for that …
12th February 2019
The RBI was able to point to a fall in inflation to justify its rate cut this week. But it also took a more sanguine line on the risks posed by still-high core inflation. We believe this will prove to have been a mistake. … RBI changes …
8th February 2019
The RBI’s new governor Shaktikanta Das has delivered what the Modi government was hoping for. The “calibrated tightening” stance was jettisoned at his first policy meeting today in favour of a rate cut. A low level of headline inflation provided …
7th February 2019
The finance ministry made a clear bid in the interim budget today to shore up popular support ahead of the general election with proposals to boost rural incomes and cut income tax. But it is also hoping to demonstrate its commitment to fiscal prudence by …
1st February 2019
India’s manufacturing PMI jumped in January, defying the trend across most of Asia. Looking ahead, prospects for local manufacturers remain fairly bright over the near term. … Manufacturing PMI …
The idea of a Universal Basic Income (UBI) in India has gained attention again this week. While a UBI could go a long way towards eradicating poverty and reducing the problems with the current welfare system, its high fiscal cost and a lack of necessary …
We agree with financial market expectations and the analyst consensus that interest rates will stay on hold at the conclusion of the RBI’s meeting on 7th February – the first under the stewardship of Governor Shaktikanta Das. But Mr Das is likely to use …
30th January 2019
The IMF released its latest growth forecasts for India this week and, while we wouldn’t get too hung up on small differences in the numbers, the trajectory of growth that the Fund is forecasting seems too optimistic to us. Meanwhile, the appointment of …
25th January 2019
The finance ministry will be keen to include some election sweeteners in the interim budget that is due on 1st February. But it will also want to demonstrate fiscal rectitude. The most likely outcome is that the deficit target for FY18/19 is revised up …
24th January 2019
Election giveaways in India have been ramped up significantly this month, with small and medium-sized enterprises (SMEs) the main beneficiaries. Firms with annual sales of less than INR0.4m are now exempt from the Goods and Services Tax. Meanwhile, banks …
23rd January 2019
The relative weakness of the rupee is doing little to boost India’s exporters, who are finding it hard to capitalise given a weakening of global demand and their own capacity constraints. … Subdued outlook for …
18th January 2019
India’s merchandise trade deficit narrowed to a 10-month low in December and, with oil prices likely to fall further, we think the shortfall will shrink a little more over the coming months. In turn, that should help to keep the current account deficit at …
16th January 2019
The drop in headline consumer price inflation in December further diminishes the case for rate hikes in the near term. The RBI’s new governor seems keen to lower rates but, with core inflation still elevated, this would be a policy mistake. … Consumer …
14th January 2019
Headline wholesale price inflation eased in December, further undermining the case for any further rate hikes in the near term. But the appointment of a dovish new governor of the RBI means we are more concerned with the policy outlook further ahead. … …
The sharp drop in industrial production growth in November is in large part linked to the shift in the timing of the Diwali holidays last year. Near-term prospects for industry remain fairly upbeat. … Industrial Production …
11th January 2019
A report this week that the RBI will transfer an “interim” dividend to the government has been wrongly linked by some to the government’s efforts to get the central bank to hand over more of its cash to the finance ministry. Such transfers are a regular …
Economic growth in India has peaked in this cycle, but we expect it to remain strong ahead of the general election in the first half of this year. Thereafter, fiscal policy will need to be tightened and, with investment also likely to weaken, growth will …
10th January 2019
The recent weakness of headline consumer price inflation, which we think dropped a little further in December, has undermined the case for any further rate hikes in the near term. But we are more concerned with the policy outlook further ahead. After all, …
9th January 2019
The drumbeat of pre-election giveaways continues at the state level in the form of loan waivers and from the national government. These steps may be effective politically but they risk eroding policymakers’ credibility as guardians of fiscal and financial …
4th January 2019
India’s manufacturing PMI edged down in December, but the reading still indicates that the sector was performing well at the end of 2018. Looking ahead, prospects for local manufacturers remain fairly bright over the near term. … Manufacturing PMI …
2nd January 2019
The dust has barely settled from the state election results announced last week, but our prediction that they would trigger a spate of fiscal giveaways is already being borne out. Farmer loan waivers have been announced in several states and we think more …
21st December 2018
2018 has been a mixed bag for India’s financial markets. The bond market has seen significant gyrations, only for yields to end the year virtually flat from 12 months ago. Meanwhile, the 7% rise in the Sensex means it has outperformed most other major EM …
20th December 2018
Economic growth in India has peaked in this cycle, but we expect it to remain strong ahead of the general election in the first half of 2019. Thereafter, fiscal policy will need to be tightened and, with investment also likely to weaken, economic growth …
18th December 2018
India’s merchandise trade deficit narrowed a touch in November and, with oil prices likely to stay lower, we think that the deficit will shrink further over the coming months. … Trade deficit to narrow …
17th December 2018
Headline wholesale price inflation eased in November and, taken alongside the drop in CPI inflation last month as well as the appointment of an ally of Prime Minister Modi as the new governor of the RBI, a rate hike at the next policy meeting now looks …
14th December 2018
The state election results announced this week were a clear setback for Prime Minister Modi’s BJP, as they suggest that goodwill is fading ahead of next year’s general election. While we still think the BJP will win the general election, it is unlikely to …
Although industrial production growth remains strong and core inflation is staying elevated, with headline inflation down sharply and an ally of Prime Minister Modi, Shaktikanta Das, the new head of the RBI, the odds of a rate hike at the next policy …
12th December 2018
The first briefing from the RBI’s new governor, Shaktikanta Das, sought to provide assurance that the central bank will continue to prioritise inflation fighting. But his background at the finance ministry and as a Modi loyalist suggests that he is more …
A disappointing set of state election results for Prime Minister Modi’s BJP suggests that the ruling national party has lost some goodwill and the risk now is that, in response, fiscal (and potentially even monetary) policy is loosened ahead of the …
11th December 2018
The resignation of RBI Governor Urjit Patel signals that the government has come out on top in its dispute with the central bank, but at the cost of undermining the RBI’s credibility and its inflation-fighting credentials. The rupee has dropped 1.5% …
