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We are in agreement with financial market and analyst expectations of a rate hold in the Reserve Bank of India’s (RBI’s) upcoming policy meeting on 4th October. Further ahead, some are still expecting further, albeit modest, policy loosening. However, …
27th September 2017
Some have argued that the recent jump in inflation is all about a surge in volatile food prices, with the implication that it shouldn’t have a significant bearing on monetary policy. But this ignores the fact that underlying price pressures are rising …
21st September 2017
The strength of gold imports in recent months is the result of temporary issues related to the new GST rather than buoyant underlying demand. As these issues get resolved, we expect gold imports to ease, which should help to ensure that the overall …
20th September 2017
Indian bond yields have continued to rise so far in September. Looking ahead, with the RBI ramping up its open market sales and no scope for further policy loosening, we think that bond yields will rise further over the coming months. … Bond yields …
While there was a widening in India’s current account deficit in Q2, the more important point is that the external shortfall remains small. Given also that FDI inflows remain strong, the economy looks well placed to cope in the event of another upsurge in …
19th September 2017
Indian wholesale price inflation rose in August, and looks set to accelerate further over the coming months. This is another reason to think that there is no scope for further monetary loosening. … Wholesale Prices …
14th September 2017
There are vast differences in the economic prospects of India’s 36 states and union territories. The three richest large states – Maharashtra, Tamil Nadu and Gujarat – should continue to drive growth. But a handful of smaller, poorer states such as Andhra …
13th September 2017
Indian consumer price inflation accelerated sharply in August, and looks set to rise further over the coming months. As such, there is no scope for further monetary loosening. … Consumer Prices (Aug.) & Industrial Production …
12th September 2017
Recent comments from former Reserve Bank of India (RBI) governor Raghuram Rajan mirror our longheld view that the key to reviving the ailing domestic banking sector is for the government to infuse capital on a large scale, and offset the cost by partially …
8th September 2017
On the face of it, demonetisation has been an abject failure given its lack of success in rooting out illicit wealth while also causing growth to slow sharply. But demonetisation is likely to have some positive effects over the longer term, including …
6th September 2017
Consumer price inflation is likely to have accelerated further in August, due in large part to a sharp jump in vegetable price inflation. Core price pressures are also building, meaning there is no scope for further policy loosening. … Inflation set to …
5th September 2017
The rebound in India’s manufacturing PMI in August should soothe some of the concerns raised by yesterday’s weak GDP data and also suggests that the disruption caused by the introduction of the Goods and Services Tax (GST) at the start of Q3 was …
1st September 2017
It is tempting to pin the weakness of India’s Q2 GDP data on disruption ahead of the introduction of the Goods and Services Tax. If anything though, this might have been expected to boost spending – and in the case of gold it certainly did. Instead, the …
31st August 2017
Strong inflows into India’s equity and bond markets have been a key reason behind the strengthening of the rupee against the US dollar in recent months. But there are reasons to think that these inflows will cool, meaning that the rally in the rupee is …
23rd August 2017
The Reserve Bank of India cut its policy rate by 25bp earlier this month, and subsequently called upon commercial banks to pass on the cut to borrowers. But the move is likely to have a negligible impact on lending growth to the private sector. After all, …
22nd August 2017
The rise in Indian bond yields over the past couple of weeks reverses only a small portion of the drop since the start of 2017. But looking ahead, with the RBI ramping up its open market sales and with the scope for policy loosening looking limited, we …
21st August 2017
The minutes of the Reserve Bank of India’s (RBI’s) August policy meeting show that, despite voting to cut interest rates, most members remain cautious about the outlook for inflation. Indeed, with inflation data for July confirming a pick-up in price …
17th August 2017
India’s monthly trade deficit narrowed in July, and a number of factors should ensure that it remains in check over the coming months. This should keep India’s financial markets relatively secure in the event that global investor sentiment turns against …
15th August 2017
Indian consumer price inflation accelerated in July, and we think that it will rise further over the coming months. As such, further monetary policy loosening looks unlikely. … Consumer Prices …
14th August 2017
Indian wholesale price inflation rose in July, and looks set to accelerate further over the coming months. As such, we think that there is no scope for further monetary loosening. … Wholesale Prices …
June’s industrial production data show that growth in the sector weakened on the eve of the implementation of the Goods and Services Tax (GST). The transition to the new tax is likely to continue to weigh on industry over the near term. But the GST should …
11th August 2017
The rapid expansion of the central government’s deficit in the early part of this fiscal year is a common occurrence, as revenues tend to get ramped up in the latter months. Even so, there are a number of reasons to think that the deficit will exceed the …
We think that consumer price inflation in India held steady in July, as the recent sharp drop in food inflation appears to have come to an end. Further ahead, we agree with the RBI’s view that inflation is set to rise as core price pressures build. … Drop …
8th August 2017
Recent developments have strengthened the ruling BJP’s hand in the Rajya Sabha (the upper house of parliament). This should help to ease the passage of economic reforms, provided that Prime Minister Modi has the appetite to pursue them. We suspect though …
3rd August 2017
The Reserve Bank of India (RBI) went with consensus expectations in cutting its repo rate by 25bp to 6.00% today. But it also acknowledged that inflation would soon be rising again. As such, further policy loosening is unlikely. … RBI rate cut to be …
2nd August 2017
July’s PMI reading suggests that India’s manufacturing sector weakened at the start of Q3 amid the near-term disruption caused by the rollout of the long-awaited Goods and Services Tax (GST). … Manufacturing PMI …
1st August 2017
Recent regulatory changes to India’s offshore rupee (so-called “masala”) bond market have led to concerns that its growth will be stifled, but these seem overdone. Over the longer term, the market is still likely to provide local firms with a viable …
31st July 2017
Financial markets and a large majority of analysts are braced for a rate cut at the Reserve Bank of India’s policy meeting next week. But the RBI has developed a taste for springing surprises recently, going against the analyst consensus at four out of …
27th July 2017
India’s GDP data for Q2 are due to be released at the end of August. We, and many others, remain sceptical about the accuracy of the national accounts data, making it important to track alternative measures of activity. Focussing on the services sector, …
26th July 2017
The result of India’s presidential election is due to be announced later today. It won’t have direct implications for the economy since the role of president is largely ceremonial. But the result could strengthen the ruling BJP’s position in future …
20th July 2017
The bond market has taken the Reserve Bank of India’s (RBI’s) surprise announcement of increased open market sales of government securities in its stride, with yields on local-currency debt remaining stable so far in July. … Bond market takes RBI …
19th July 2017
India’s trade deficit retreated in June from a 30-month high in May. With imports of key commodities such as oil and gold likely to stay in check, the overall trade deficit should remain at a comfortable level by past standards. … Trade position remains …
17th July 2017
The drop in headline Indian wholesale price inflation in June will increase the clamour for rate cuts. But stripping out the effect of volatile fuel and food prices, our measure of core WPI inflation held steady, and there are reasons to think it core …
14th July 2017
The further drop in Indian consumer price inflation in June will increase the clamour for policy loosening. But with inflation now close to bottoming out, we still expect rates to stay on hold over the coming months. … Consumer Prices (Jun.) & Industrial …
12th July 2017
Consumer price inflation is likely to have eased again in June, due in large part to another drop in food and fuel inflation. But inflation is close to bottoming out, and is likely to begin rising again over the coming months as core price pressures …
7th July 2017
A rise in domestic coal production this year has led some to suggest that the government could yet achieve its goal of ending its reliance on imports within the next three years. But the sector continues to face longer-term challenges that make the …
6th July 2017
The Goods and Services Tax (GST) was finally rolled out in India over the weekend, over a decade after its conception. There are bound to be some teething problems in the coming weeks and months, but over time the GST should prove more efficient and …
3rd July 2017
June’s PMI reading suggests that India’s manufacturing sector weakened a touch last month, but remained in relatively good shape on the eve of the implementation of the new Goods and Services Tax (GST). … Manufacturing PMI …
Shifting the start of India’s financial year from April to January, as the government appears to be considering, would align it with the norm in most other countries and therefore make life easier for accountants and economists (including ourselves!). But …
29th June 2017
Discussions on the health of India’s public finances often focus exclusively on the national level, where relatively good progress has been made reining in the budget deficit in recent years. Less attention is paid to the state level, where fiscal …
28th June 2017
The Reserve Bank of India (RBI) has started to put to use its new powers to clean up the banking sector. Earlier this month it instructed several commercial banks to begin insolvency proceedings against the biggest corporate defaulters. On some estimates, …
22nd June 2017
The surge in Indian equities over the past few months has continued in June, with the benchmark Sensex stock index closing at a fresh all-time high on the 19th. The rally reflects in part a broader pick-up across most major EM equity markets, but local …
20th June 2017
India’s monthly trade deficit widened to its highest level in two and a half years in May, but we don’t think this is much of a concern. With imports of key commodities such as oil likely to stay in check, the overall trade deficit should still remain at …
19th June 2017
There was a slight widening in India’s current account deficit in Q1, but the bigger picture is that the external shortfall remains small. In addition, FDI inflows remain strong. Given this, the economy looks well placed to cope in the event of another …
16th June 2017
The drop in headline Indian wholesale price inflation in May will increase the clamour for rate cuts. But stripping out the effect of volatile fuel and food prices, our measure of core WPI inflation actually edged up last month. With reasons to think that …
14th June 2017
The announcement over the weekend of a debt write-off for farmers in Maharashtra extends the precedent set in Uttar Pradesh in April. Other states may now follow, at a significant fiscal cost. … Loan waivers are setting a dangerous …
13th June 2017
The sharp drop in Indian consumer price inflation in May is likely to raise further questions about the RBI’s reluctance to loosen policy. But we think the central bank’s unwillingness to cut rates is justified. Inflation is close to bottoming out, and is …
12th June 2017
The Indian government is treading on dangerous ground with calls for monetary easing and other moves that could put the independence of the Reserve Bank of India (RBI) at risk. A loss of credibility for the central bank could jeopardise its efforts to …
Renewed talk of the government ramping up its privatisation drive is welcome, but its aim of raising INR725bn through asset sales of various state-owned companies this year still looks unrealistic. In response, rather than allowing the budget position to …
9th June 2017
Consumer price inflation is likely to have eased in May due in large part to another drop in food inflation, and we have nudged down our full-year inflation forecast in response to the weakness in the first few months of 2017. But the more important point …
8th June 2017
