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Manufacturing slowing and tentative signs of inflation easing India’s manufacturing PMI dropped back in June, adding to the evidence of a slowdown in the broader industrial sector. Meanwhile although there are tentative signs of price pressures in the …
1st July 2022
Headline figures mask slowdown in output growth Base effects boosted y/y growth in India’s core infrastructure industries to a 13-month high in May. But stripping out base effects reveals that industry might be entering a softer patch after a strong few …
30th June 2022
SGBS may help at margin to reduce gold imports Among the reasons for gold's continued popularity with families in India is its use as an inflation hedge. So it’s unsurprising that the recent surge in inflation has coincided with a renewed jump in gold …
24th June 2022
The minutes of the MPC’s June meeting – in which the repo rate was hiked by 50bps to 4.90% – show that combatting inflation remains the priority and suggest that tightening will continue to be frontloaded. The MPC voted unanimously to raise the repo rate …
22nd June 2022
The rupee has held up better than most EM currencies this month and the recent drop in FX reserves strongly indicates that this is in part because the RBI has once again ramped up its FX interventions. (See Chart 1.) RBI Governor Shaktikanta Das has made …
RBI holds firm in defence of the rupee Data late last week showing a larger-than-expected rise in core inflation in the US in May, and the Fed’s hefty 75bp hike this week, have contributed to a broad-based sell-off in global financial markets with many EM …
17th June 2022
India’s goods trade deficit didn’t widen in the immediate aftermath of Russia’s invasion of Ukraine – rather counter-intuitively for a major commodity importer. But that has now started to happen, and a closer look at the data suggests the deficit may …
16th June 2022
WPI inflation suggests drop in CPI inflation will be short-lived Indian wholesale price inflation climbed to another historic high in May. The rise in food prices in particular suggests that some of the upside risks to the inflation picture we have been …
14th June 2022
Drop in inflation unlikely to last India’s consumer price inflation dropped back in May, but much of that was due to base effects. We expect inflation to resume rising from June, prompting the RBI to continue frontloading policy tightening. Headline CPI …
13th June 2022
RBI frontloading continues The key event this week was of course the Reserve Bank’s policy announcement, in which the MPC stepped up the pace of tightening by hiking the repo rate by 50bps to 4.90%. We wrote about the decision here , and discussed it in …
10th June 2022
The RBI hiked the repo rate by 50bps to 4.90% today, as we had anticipated, and made substantial upward revisions to its near-term inflation forecasts. Further tightening will follow over the coming months. But we also expect policymakers to step up …
8th June 2022
Headline CPI inflation in India is likely to have dropped in May, primarily due to base effects. But beyond May, we expect inflation to resume rising, reaching over 8% by August. The RBI is likely to respond by frontloading policy tightening in the coming …
7th June 2022
Stage set for strong GDP growth in 2022… GDP data for Q1 (Q4 of FY21/22) released this week showed that the economy weathered the Omicron wave pretty well. Even though the annual growth rate slowed from 5.4% y/y in Q4 of 2021 to 4.1%, GDP still eked out a …
3rd June 2022
MPC set to follow off-cycle rate hike with 50bps of tightening in both June and August Pace of tightening to slow after inflation peaks in Q3 We will be hosting an online Drop-In after the June MPC meeting, register here We think the MPC will follow its …
2nd June 2022
Policy tightening by the RBI is putting public finances stretched by the pandemic under further strain. While an increase in debt financing costs is inevitable, we expect the government and RBI to step up financial repression so that the full impact of …
1st June 2022
Manufacturing performing well, but few signs of inflation easing India’s manufacturing PMI held steady in May, but there are further signs of price pressures becoming more intense last month. That supports our view that the RBI will frontload its policy …
Economy well-placed for 2022, but downside risks growing Indian GDP data for Q1 (Q4 of FY21/22) show that activity held up much better during the Omicron outbreak than during previous virus waves. The economy is well-placed for strong growth over 2022 as …
31st May 2022
Governor Das confirms more rate hikes to come… RBI Governor Shaktikanta Das was in a candid mood when on media duties this week. Among the more notable comments, he said that the MPC would be revising up its inflation forecasts for this year and next in …
27th May 2022
The RBI kicked off its tightening cycle this month with a 40bp hike to the repo rate (to 4.40%) in an unscheduled policy announcement. The minutes to that meeting show that several MPC members are keen to frontload policy tightening to keep a lid on …
Measures unveiled by Finance Minister Nirmala Sitharaman over the weekend including a cut to excise duties on petrol and ramping up of fertiliser subsidies should offer a small reprieve to households dealing with the sharp rise in fuel and food prices. …
23rd May 2022
Heatwave damage could extend beyond wheat The news has been dominated this week by the government’s decision to restrict exports of wheat on food security grounds, following heavy damage to crops from the heatwave. This has caused ructions in the global …
20th May 2022
Rise in bond yields becoming a concern The rupee dropped to an all-time low against the US dollar this week but, as we noted here , the big picture is that it has held up much better than most other EM currencies over the past few months. One reason is …
13th May 2022
Inflation surges to eight-year high Headline consumer price inflation surged beyond even our above-consensus forecast to an eight-year high of 7.8% y/y in April. Given that it is likely to rise even higher over the coming months, further hikes to the repo …
12th May 2022
The Indian rupee hit a record low against the US dollar today, but the big picture is that RBI intervention has helped it hold up better than most EM currencies recently. Given that the RBI has ample FX reserves, we expect the rupee to remain more stable …
9th May 2022
Power shortages pose upside risk to inflation The ongoing heatwave in India is prompting a surge in electricity demand that power companies are struggling to meet. (See Chart 1.) In fact, power shortages at peak times were more widespread in April than in …
6th May 2022
Activity robust, but price pressures intensifying India’s April PMIs show activity picking up, but power shortages may weigh on output soon. The surveys also provide more evidence of price pressures growing. That suggests the RBI will follow up …
5th May 2022
The Reserve Bank today turned even more hawkish with an unscheduled, unconventional 40bp hike that takes the repo rate to 4.40%. We had been among the early hawks on Indian monetary policy and were already expecting more rate hikes than the consensus this …
4th May 2022
Core industries painting a mixed picture Growth in India’s core infrastructure industries slowed in March as production of some energy commodities fell. However, there are tentative signs that the rise in commodity prices caused by the war in Ukraine may …
29th April 2022
Repo rate hike on the horizon MPC members have been in a chatty mood this week, with both Jayanth Varma and Ashima Goyal giving interviews to the press. Despite being at opposite ends of the policy spectrum (Mr Varma is the most hawkish member of the …
The key policy development this month was the introduction of a new Standing Deposit Facility (SDF), through which the RBI will drain excess banking sector liquidity. The SDF now provides the floor for the interest rate corridor, previously set by the …
28th April 2022
The minutes of the MPC’s early April meeting – in which the committee kept the repo rate on hold but introduced a new rate that set a higher floor for the interest rate corridor – confirm that taming inflation has taken precedence over supporting the …
22nd April 2022
UK trade deal would have limited impact UK Prime Minister Boris Johnson’s two-day visit to India – which concludes today – has garnered plenty of headlines. Underpinning the visit are talks between PM Johnson and counterpart PM Narendra Modi towards a …
Upside risks to inflation are materialising We’ve been arguing for several months that both the consensus and the RBI have been underestimating the upside threats to inflation. Consumer price data for March released this week have reinforced our view. The …
14th April 2022
The narrowing in India’s goods trade deficit in March was due in large part to a sharp drop in gold imports. Even if gold imports remain low, we still expect the trade and current account deficits to widen this year given the jump in prices of other …
13th April 2022
Overview – The surge in global commodity prices will take a little gloss off India’s economic recovery this year but we still expect stronger GDP growth than the consensus. Higher commodity prices will also keep inflation elevated, which we think will …
Inflation surges to 17-month high Headline consumer price inflation soared beyond even our above-consensus forecast in March and, given that it is likely to rise further over the coming months, we think the RBI will start hiking the benchmark repo rate …
12th April 2022
The RBI’s policy announcement and the introduction of the Standing Deposit Facility has prompted a number of questions from clients on its intended purpose and what it means for monetary policy. This Update aims to provide further clarity on the new …
11th April 2022
Pressure mounting on India-Russia relations Relations between India and Russia came under fresh scrutiny this week, with US officials warning of “significant and long-term” consequences if India moves towards a “more explicit strategic alignment” with …
8th April 2022
The MPC’s unanimous decision to keep the repo rate unchanged at 4.00% today came as no surprise but the introduction of a new policy rate that sets a higher floor for the interest rate corridor indicates a less accommodative policy stance. And with …
Omicron rebound continued, but inflationary risks growing India’s March PMIs show services as the bright spot last month as looser virus restrictions allowed activity to rebound. Unless COVID-19 cases pick up again, the outlook for the services sector …
6th April 2022
Higher commodity prices beginning to take a toll India’s manufacturing PMI dropped back in March as high commodity prices caused by the war in Ukraine began to take a toll on the sector. Given that fuel and gas prices have only climbed higher since the …
4th April 2022
Dovish RBI will need to tighten before long Watchers of India’s economy will be focussed on the RBI’s policy announcement at the conclusion of the MPC meeting on Friday 8 th April. Clients can read a full preview of the announcement in our RBI Watch …
1st April 2022
Industrial recovery faces new headwinds Output from India’s core infrastructure industries picked up in February as the Omicron wave subsided. But the surge in commodity prices as a result of the war in Ukraine is likely to squeeze profit margins and …
31st March 2022
Dovish MPC commentary suggests rates will stay on hold next week But inflation is likely to become more of concern over the coming months Repo rate likely to rise by more than the consensus expects this year Since the outbreak of the war in Ukraine, MPC …
30th March 2022
Rupee-ruble exchange would still lift oil import bill Indian authorities are in advanced discussions with their Russian counterparts over a rupee-ruble exchange system that would enable the two countries to continue trading even as Russia gets blocked …
25th March 2022
Wheat exports impact will be limited The disruption to the global wheat market caused by the war in Ukraine presents an opportunity to Indian exporters. India is the world’s second largest producer of wheat, but until recently virtually all of that …
18th March 2022
The surge in commodity prices as a result of the war in Ukraine will have several repercussions for India’s economy. As a major net commodity importer, its terms of trade will deteriorate and we think the current account deficit could reach almost 4% of …
17th March 2022
The surge in commodity prices brought about by the war in Ukraine will lead to a deterioration in India’s external position, with the current account deficit widening to almost 4% of GDP this year. While not as large as it was during the previous period …
16th March 2022
Commodity price surge will keep headline inflation high India’s consumer price inflation breached the RBI’s 6% ceiling in February, sooner than even our relatively hawkish forecasts had suggested. The surge in commodity prices will keep the headline rate …
14th March 2022
WPI inflation to remain elevated for a while yet Indian wholesale price inflation remained near historic highs in February, and it is likely to stay elevated in the near term given the recent surge in commodity prices. Headline WPI edged up from 13% y/y …
