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Limited macro fallout from sliding rupee The rupee has this week continued its slide against the US dollar, dropping to a record low of 83/$ on Thursday. As has been the case over the past few months, this has been the trigger for a series of alarmist …
21st October 2022
The RBI continued frontloading policy tightening in its late-September meeting with another 50bp hike to the repo rate (to 5.90%) but communications since then suggest that some MPC members are ready to ease off the brakes. The minutes to that meeting …
19th October 2022
Apple production shift boosts local manufacturing Regular readers of our India research will be (perhaps all-too-) familiar with our view that the key to India sustaining rapid economic growth over coming decades is the development of its manufacturing …
14th October 2022
Wholesale inflation drops to 18-month low The fall in Indian wholesale price inflation to an 18-month low in September comes as welcome news following the stronger-than-expected consumer price data released earlier this week. And with headline CPI …
Overview – The RBI has frontloaded policy tightening over recent months but with inflation peaking and economic headwinds building, we think the central bank will now slow the pace of tightening and revert to 25bp hikes. Our forecast is for the repo rate …
13th October 2022
Headline inflation rises, but now set to drop back The rise in headline consumer price inflation in September to further above the RBI’s 2-6% target range challenges our view that the RBI will slow the pace of tightening. But with food and energy …
12th October 2022
The rise in headline consumer price inflation in September to further above the RBI’s 2-6% target range challenges our view that the RBI will slow the pace of tightening. But with food and energy inflation now set to lastingly drop back and growth likely …
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
JP Morgan announcement won’t impact inflows After weeks of media speculation over an imminent addition, it was announced on Wednesday that India’s local-currency bonds will not be included in JP Morgan’s GBI-EM Global Diversified Index for the time …
7th October 2022
Economy holding up amid policy tightening India’s PMI readings moderated in September but the more important point is that they still indicate healthy growth in both manufacturing and services. The RBI will remain comfortable tightening policy over the …
6th October 2022
C/A deficit widens to multi-year high Data released this week show that India’s current account deficit widened to 2.8% of GDP in Q2, its largest since 2013. The data can however be volatile, so we prefer to take a longer perspective. In the year to Q2, …
30th September 2022
The RBI hiked the repo rate by another 50bp (to 5.90%) today and the communications give a clear steer that the tightening cycle still has further to run. But with inflation set to slow, we think the central bank will now revert to hikes of 25bp …
RBI continues to frontload tightening The RBI hiked the repo rate by 50bp for the third meeting in a row today, taking it to 5.90%. Further rate hikes are likely over the coming months but, with inflation set to slow, we think the central bank will now …
Drop in FX reserves not a macro concern Data to the first week of September show that the RBI’s FX reserves have dropped in value to US$550bn, the lowest level in almost two years. (See Chart 1.) While part of that is a valuation effect, it is mainly …
23rd September 2022
Renewed inflation rise should seal another 50bp hike next week Pace of tightening to slow thereafter Repo rate to rise a little more than the consensus expects by early 202 We expect the MPC to continue frontloading policy tightening with another 50bp …
22nd September 2022
The RBI this month asked four public-sector banks to trial its central bank digital currency (CBDC) before year-end, keeping to the timeline that it set out when plans were first announced in the FY22/23 Union Budget. As our CBDC handbook explains, any …
21st September 2022
Goods trade deficit set to narrow further… Data released this week confirmed that India’s merchandise trade deficit retreated from a record high (in dollar terms) of US$30bn in July to US$28bn in August. This was driven in large part by a drop in oil …
16th September 2022
India is facing renewed concerns about energy supply, fuelled by low inventories of coal. With the economy very reliant on coal for electricity generation, persistent shortages would almost certainly weigh on the economy while also stoking price pressure. …
13th September 2022
Rise in headline CPI rate should ensure another 50bp rate hike this month The rise in Indian CPI inflation in August to further above the RBI’s 2-6% target range should ensure that the central bank delivers another 50bp hike to the repo rate (to 5.90%) in …
12th September 2022
Rise in headline rate paves way for another 50bp hike this month The rise in Indian CPI inflation in August to further above the RBI’s 2-6% target range should ensure that the central bank delivers another 50bp hike to the repo rate (to 5.90%) in its …
Index inclusion won’t transform outlook for bonds If media reports this week are to be believed, Indian local-currency bonds are on the cusp of being included in JPMorgan’s GBI-EM Global Diversified Index. Some are suggesting that this could happen this …
9th September 2022
Emerging markets will account for more than half of global GDP within the next decade. Headlining this, India is on course to become the world’s third largest economy by 2030. And EMs with rapid population growth, healthy manufacturing sectors or those …
6th September 2022
New GDP forecasts GDP data released this week showed that growth surged from 4.1% y/y in Q1 to 13.5% y/y in Q2 (Q1 of FY22/23). But on our own seasonal-adjustment, that implied a gain of only 0.1% q/q. That seems improbably small given the strength of …
2nd September 2022
Manufacturing activity remains robust India’s manufacturing PMI moderated a touch in August but the more important point is that the reading is still consistent with robust growth in the sector. The RBI will remain comfortable tightening policy and we …
1st September 2022
Growth disappoints, but won’t derail policy tightening Base effects caused a surge in headline Indian GDP growth in Q2 (Q1 of FY22/23), but underlying growth slowed relative to Q1. As a result, GDP growth won’t reach 9% in 2022 as we had thought. That …
31st August 2022
The Indian rupee has continued its long-run trend of depreciation against the US dollar this year, taking it to a record low of 80/$. It may still weaken further in the near term. However, there are reasons to think that that the rupee will reverse …
GDP data for Q2 (Q1 of FY22/23) due next week should show that the economy grew at a robust pace last quarter despite the onset of monetary policy tightening. And more timely indicators suggest that the economy has held up well so far in Q3 too. The …
26th August 2022
Foreigners’ net purchases of Indian equities have surged to near record levels in recent weeks. On a one-month rolling basis, inflows have only been higher in US dollar terms on one occasion, in December 2020. (See Chart 1.) Chart 1: Foreigners’ Net …
Core inflation to offset falls in food & energy CPI data for July released last Friday indicated that the upside risks to food inflation we flagged earlier this year have not materialised. As we noted, food prices fell by 0.7% m/m in seasonally-adjusted …
19th August 2022
Wholesale inflation trending down, but still elevated The fall in Indian wholesale price inflation in July reflects easing wholesale food inflation and lower commodity prices. But given both WPI and CPI inflation are still elevated, we think the RBI will …
16th August 2022
We agree with PM Modi’s assertion in his Independence Day speech over the weekend that boosting female participation in the labour force could have a major positive impact on the economy, but in truth the government’s record in this area is poor. Looking …
15th August 2022
Inflation trending lower, but underlying price pressures still strong The bigger-than-expected drop in inflation in July is a challenge to our view that the MPC will hike the repo rate by 50bps again next month. But core inflation remains pretty strong, …
12th August 2022
BJP-led NDA loses some clout For all its power in parliament’s lower house (Lok Sabha), a majority in the upper house (Rajya Sabha) has remained elusive for PM Modi’s BJP. As the main party in the National Democratic Alliance (NDA), it has been closing in …
Trade data point to softening in exports Preliminary data released this week showed India’s goods trade deficit widening from a seasonally-adjusted $25.8bn in June to $29.3bn in July, the largest on record in dollar terms. But while the widening in the …
5th August 2022
The RBI today raised the repo rate by 50bps to 5.40% as we had anticipated, and struck a relatively hawkish tone despite inflation surprising to the downside in recent months. It’s clear that the tightening cycle still has legs and we expect another …
Services coming off the boil, price pressures past their peak India’s July PMIs show a reversal of the recent outperformance of services. That said, both the services and composite PMIs remain high by pre-pandemic standards, pointing to growth continuing …
3rd August 2022
Domestic demand propping up manufacturing activity India’s manufacturing PMI was remarkably strong in July, with domestic demand supporting activity despite a negative global backdrop. The rebound will give the RBI more confidence to hike by 50bps this …
1st August 2022
Conditions continue to deteriorate in industry Favourable base effects kept y/y growth in India’s core infrastructure industries elevated in June. But once those base effects are removed, it’s clear that the industrial sector is entering a weaker phase. …
29th July 2022
Data to mid-July show that the RBI’s FX reserves have dropped to US$572bn, the lowest level in almost two years. (See Chart 1.) Chart 1: FX Reserves (US$bn)* Sources: CEIC, Capital Economics While part of that is a valuation effect, it is mainly due to …
Drop in inflation unlikely to stave off another 50bp hike next week Another 50bps possible in September, but tightening to slow after inflation peaks in Q3 Repo rate to rise by more than most expect by early 2023 We expect the MPC to continue frontloading …
28th July 2022
Remittances to support external position Remittances (money transferred by foreign workers back to their home countries) are an important and often underappreciated source of foreign currency for India. The RBI’s latest monthly bulletin released this week …
22nd July 2022
The latest population projections released by the UN this month show that India will overtake China as the world’s most populous nation in 2023 (see Chart 1), a touch earlier than previously expected. The UN also projects that India’s working-age …
21st July 2022
We’ve recently received several questions from clients on how the near-term outlook for India is shaping up. This Update summarises our big picture views for the next six months or so by providing answers to five key questions. Question #1: What is the …
20th July 2022
INR settlement unlikely to see widespread use The RBI announced earlier this week that it has put in place a mechanism for international trade to be settled directly in rupees “in order to promote growth of global trade” and “support the increasing …
15th July 2022
WPI inflation has probably peaked Wholesale price inflation in India dropped back in June from its record high, and now appears to have passed its peak. CPI inflation will also peak in the next few months, but in the near term it’s still likely to rise …
14th July 2022
Inflation holds steady, but will climb again soon Headline consumer price inflation held steady in June, but the core rate rose further. We expect inflation to climb higher above the RBI’s target in July and August, which should be enough for the MPC to …
12th July 2022
Trade tweaks to have offsetting impact… Following the reintroduction of the sovereign gold bond scheme in June, the government has further stepped up its attempts to reduce gold imports, with the Finance Ministry hiking the basic import tax on gold from …
8th July 2022
Overview – Strong economic growth and surging inflation have prompted the RBI to kick-start its hiking cycle and we think the central bank will continue to frontload policy tightening. In all, we think the repo rate will rise by a bit more than the …
7th July 2022
Services sector booming India’s June PMIs show exceptionally strong activity in the services sector is offsetting slower growth in manufacturing. That may give the RBI some added confidence to continue frontloading policy tightening. India’s services PMI …
5th July 2022
GST hikes don’t signify tighter fiscal stance… The Finance Ministry’s announcement this week of hikes to the GST rate on products ranging from hang glider parts to LED lamps comes as something of a surprise. After all, it goes against the grain of the …
1st July 2022
