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Price spikes won’t boost inflation yet Near-term inflation dynamics in India are largely driven by food prices, which account for almost half of the CPI basket. Concerns over a pick-up in food prices have been growing in recent days. The minutes of the …
30th June 2023
The sharp narrowing in India’s current account deficit in Q1 was largely due to the strength in services exports. Looking ahead, we think the deficit will narrow to 1.0% of GDP across 2023 as a result of softer domestic demand and as commodity prices …
28th June 2023
EMs will account for over half of global GDP within the next decade and almost 60% by 2050. India will become the world’s third-largest economy before 2030. More generally, EMs with rapid population growth, with potential to develop into manufacturing …
26th June 2023
Indian manufacturing to benefit by leaning to US The sweeping agreements on trade and defence announced during Narendra Modi’s state visit to the US this week underline that India’s government and firms increasingly see their interests as favouring …
23rd June 2023
This new Chart Pack has been designed to replace our Chart Book in response to client feedback to make our insights more accessible, and with more options to incorporate them into your workflow. Use the menu at the top of the viewer to navigate around the …
20th June 2023
Note: We’re talking inflation and the BOJ, slowing Indian growth, and regional monetary easing in our Asia Drop-In on Thursday, 22nd June. Register now . Latest inflation data support our rates cuts view The overarching message from our Q3 India Economic …
16th June 2023
Overview – The RBI’s tightening cycle has come to an end and, as the economy comes off the boil and inflation settles at comfortable rates, we think interest rates cuts will materialise in early 2024. Over the longer term, India’s growth prospects are …
12th June 2023
Headline inflation to remain anchored within the RBI’s 2-6% target range Headline consumer price inflation fell to a 25-month low in May and is likely to remain within the RBI’s 2-6% target range for the foreseeable future. That means the tightening cycle …
RBI hawkish, but inflation outlook improving The Reserve Bank of India (RBI) didn’t throw up any surprises when it kept the repo rate on hold at 6.50% this week. The move was widely expected and the muted reaction in local financial markets suggests that …
9th June 2023
The RBI’s decision to keep the repo rate on hold (at 6.50%) today comes as no surprise given the recent sharp drop in inflation. The central bank continues to strike a hawkish tone and the door remains ajar for further hikes. But with headline inflation …
8th June 2023
RBI could be laying groundwork for cuts before long The RBI’s decision to keep the repo rate on hold (at 6.50%) today comes as no surprise given the recent sharp drop in inflation. The door remains ajar for further hikes but with headline inflation set to …
Revising up our GDP forecast for 2023 The activity data released this week suggest that the economy is holding up better than we had been anticipating. GDP growth accelerated from 4.5% y/y in Q4 2022 to 6.1% y/y in Q1 (Q4 of FY22/23). Based on our …
2nd June 2023
MPC to keep rates on hold next week Slower growth and inflation could mean MPC is laying groundwork for cuts before long Consensus has come round to our view that rates will be cut in early 2024 We think the MPC will keep policy unchanged at the …
1st June 2023
Indian manufacturing sector remains resilient India’s manufacturing PMI reading rose in May to a 31-month high and points to very healthy growth in the sector. But the survey also shows that price pressures are well past the peak, supporting our view …
Growth likely to slow after Q1 rebound GDP data for Q1 (Q4 of FY22/23) show that India’s economy rebounded at the start of the year. But with higher interest rates still feeding through and fiscal policy turning slightly less supportive, growth is likely …
31st May 2023
India’s economy is one of the most vulnerable in the world to the physical effects of climate change. Climate change alone won’t stop relatively rapid rates of growth over the coming decades. But it is likely to mean that income convergence with other, …
Limited impact from INR2,000 note withdrawal The RBI’s announcement that it is withdrawing the INR2,000 note is likely to have evoked memories of the shock demonetisation exercise in 2016. As it happens, the INR2,000 note’s existence has been short-lived; …
26th May 2023
In a fracturing global economy, India stands out as a prime location for the “friend-shoring” of manufacturing supply chains out of China. The manufacturing powerhouses of Gujarat and Tamil Nadu are best-placed to benefit from this shift. But a handful of …
23rd May 2023
The past month has brought some encouraging news on the inflation front. Consumer price inflation dropped sharply in April to an 18-month low, keeping the headline rate comfortably within the RBI’s 2-6% target range. Both energy and food price inflation …
22nd May 2023
Over the past couple of weeks we have held a series of roundtable discussions with clients across Asia and North America on the outlook for EMs. In this Update we provide our thoughts on the recurring questions that we received, including on China’s …
19th May 2023
Election result could slow the pace of reforms We learnt this week that Congress secured victory in the state election in Karnataka , gaining 135 out of 224 assembly seats – well above the 113 seats needed for a majority. (See Chart 1.) Congress has …
The sharp rise in unsecured bank lending has probably helped to support consumption and boosted bank profitability over recent quarters. But it also leaves the banking sector at risk of rising defaults, a concern that is exacerbated by the relatively low …
16th May 2023
The recent strength of services exports has helped to offset much of the impact of the drop in goods exports and – along with a pull-back in import values – is another reason to think that the current account deficit will narrow this year. Data for April …
15th May 2023
Drop in wholesale inflation reinforces our view of no more rate hikes The drop in Indian wholesale price inflation in April, to a 33-month low, further reinforces our view that the central bank’s tightening cycle has come to an end. Headline wholesale …
Sharp drop in headline inflation suggests no more rate hikes The sharp drop in headline consumer price inflation in April, to an 18-month low, supports our view that the central bank’s tightening cycle has come to an end. Headline CPI inflation fell from …
12th May 2023
Karnataka, at the forefront of the reform agenda The state election in Karnataka was held this week, with results due on Saturday. Our primer on why India’s state elections matter can be found here ; but the Karnataka election arguably matters more than …
PMIs continue to be at odds with hard data The PMI surveys for April released this week suggest that both the manufacturing and services sectors in India started Q2 on a strong footing. The manufacturing PMI reached a 4-month high while the services PMI …
5th May 2023
The idea of a new BRICS currency to settle trade or hold in reserves instead of the dollar has been doing the rounds recently. This could be modelled on the IMF’s Special Drawing Rights. But getting India on board with China would be difficult. And if the …
4th May 2023
PMI readings continue to be at odds with the hard activity data India’s manufacturing and services PMI readings rose in April but are at odds with the hard activity data that point to more subdued domestic and external demand. The composite PMI rose from …
3rd May 2023
Industry to continue facing headwinds Growth in India’s core infrastructure industries slowed in March, indicating that some of the resilience in the industrial sector at the start of the year may be fading. Domestic and external headwinds mean a …
28th April 2023
Fall in the rupee this year likely to be limited The rupee is up by around 1% against the US dollar so far this year, leaving it in the middle of the pack among other EM currencies. (See Chart 1.) Chart 1: Currencies vs. US$ (% change, YTD) Sources: …
Door remains ajar for further tightening… The minutes of the MPC’s April meeting – in which the committee voted unanimously to keep the repo rate on hold (at 6.50%) for the first time in a year – were published this week. While it has been clear for some …
21st April 2023
India is benefitting from maintaining its historic unaligned stance in tensions between the US and Russia. Since the start of the war in Ukraine, India has been ramping up oil imports from Russia to take advantage of discounted prices. (See Chart 1.) And …
20th April 2023
India becomes home to world’s largest population According to UN projections, India will today become home to the world’s largest population, displacing China from the number one spot. In truth, the exact timing of the transition is unknown: it may even …
14th April 2023
Headline CPI rate now likely to remain within target range The drop in headline consumer price inflation back to within the RBI’s 2-6% target range in March supports our view that the central bank’s hiking cycle has come to an end. Headline CPI inflation …
12th April 2023
Raising exports to US$2trn by 2030 a tough task This week marked the start of the government’s new Foreign Trade Policy (FTP). While previous FTPs have had a five-year span and have typically focussed on financial incentives for exporters such as …
6th April 2023
The RBI’s decision to keep the repo rate on hold at 6.50% today belied the central bank’s recent hawkish communications. The door remains ajar for hikes in the future but with headline inflation set to fall back to within the RBI’s 2-6% target range …
RBI unlikely to tighten any further The RBI’s decision to keep the repo rate on hold (at 6.50%) today comes as a surprise and belies the central bank’s recent hawkish communications. The door remains ajar for hikes in the future but with headline …
The widening in India’s current account deficit last year, to 2.4% of GDP, was not as significant as many had feared in the context of the surge in commodity prices. Looking ahead, we think the deficit will narrow over the coming quarters as domestic …
4th April 2023
Note: Join our 6th April online briefing all about the risks to EMs from banking turmoil. Register now . Strength of manufacturing PMI supports rate hike this week India’s manufacturing PMI reading edged up in March and points to healthy growth in the …
3rd April 2023
Note: Join our 6th April online briefing all about the risks to EMs from banking turmoil. Register now . Rosneft, IOC deal will keep Russian oil flowing We’ve made the case in much of our research that, in an increasingly fractured global economy that …
31st March 2023
Hike to repo rate (to 6.75%) next week will likely be last in the cycle Slower growth and inflation could mean MPC is laying groundwork for cuts before long Consensus coming round to our view that rates will be cut in early 2024 With the turmoil in the …
30th March 2023
Recent turmoil in the banking sector may have been a US and European story, but there are potentially important angles for Emerging Market investors. Our latest EM Drop-In explored the economic spill-over risks from the recent panic and the …
28th March 2023
Labour reforms could encourage more MNCs The overarching message from our latest India Economic Outlook published this week is that while prospects for the economy look a little uninspiring over the near term, there are reasons to be optimistic further …
24th March 2023
Spill-overs from the turmoil in the global banking system to India have been limited so far, but the big unknown is whether difficulties will flare up at home. Bank problems can arise via multiple channels. There may be banks that have not adequately …
22nd March 2023
Overview – The RBI’s tightening cycle is in its final throes and, as the economy softens and inflation drops back to within the central bank’s 2-6% target range, we think rates cuts will materialise in early 2024. Over the longer term, India’s growth …
20th March 2023
While the Credit Suisse rescue might draw a line under that particular institution’s problems, it is clear that confidence in the financial sector overall is still extremely fragile. So regardless of whether more financial institutions run into trouble, …
Limited contagion, but Indian banks a worry Our coverage of the collapse of SVB and the turmoil at Credit Suisse and their implications for the global economy and financial markets can be found on our dedicated webpage . For India, the fallout so far has …
17th March 2023
A key channel through which emerging markets could be affected by the strains in the global banking sector is if lending by foreign banks falls sharply. On this front, EMs’ vulnerabilities have eased since the Global Financial Crisis. But there are still …
16th March 2023
At the time of writing, financial markets appear to be stabilising after the turmoil caused by the collapse of SVB. And it doesn’t look like EMs have suffered large capital outflows or strains in their banking sectors. If this relatively benign scenario …
14th March 2023
