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India Economics Update

A small helping hand for households

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. But the measures won’t be enough to prevent further rises in inflation over the coming months, and will come at the cost of a slightly wider fiscal deficit this year. Asia Drop-In (26th May, 0900 BST/16:00 SGT): Can Asia remain the low inflation exception? Join our 20-minute briefing about the region’s price and policy outlooks. Register here.

23 May 2022

India Economics Weekly

Heatwave damage, MPC minutes, WPI surge

The government’s decision to restrict exports of wheat following heavy damage to crops from the heatwave will have limited impact on the trade balance and inflation. The bigger worry is that the extreme heat will do broader damage to other rabi (winter) crop. Meanwhile, the minutes of the RBI’s unscheduled meeting this month show that several MPC members are keen on frontloading rate hikes to rein in inflation expectations. That supports our view that the repo rate will be hiked by 50bp in the next meeting in June.
Asia Drop-In (26th May, 0900 BST/16:00 SGT): Can Asia remain the low inflation exception? Join our 20-minute briefing about the region’s price and policy outlooks. Register here.

20 May 2022

India Economics Weekly

G-SAP redux?

The recent jump in bond yields is reportedly causing consternation among policymakers. The big worry is the impact that higher bond yields would have on the trajectory of India’s public debt. This sets the stage for more financial repression policies and a potential return of the RBI’s so-called “G-SAP” – the programme introduced last year in which it made regular purchases of government bonds on the secondary market.
EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

13 May 2022

Key Forecasts

Main Economic & Market Forecasts

% y/y unless stated

Latest

Q1 2022

Q2 2022

Q3 2022

2022

2023

2024

GDP

+5.4*

+3.5

+19.0

+9.5

+9.2

+7.5

+7.0

Consumer Prices

+7.8**

+6.3

+7.3

+7.8

+7.1

+5.2

+4.0

Current Account (4Q Sum, % of GDP)

-1.1*

-1.8

-3.1

-3.8

-3.7

-2.0

-2.0

Repo Rate %

4.40

4.00

4.90

5.15

5.65

6.15

6.15

Standing Deposit Facility %

4.15

N/A

4.65

4.90

5.40

5.90

5.90

Cash Reserve Ratio %

4.65

4.00

4.50

4.50

4.50

4.50

4.50

10-Yr Government Bond Yield %

7.35

6.84

7.45

7.48

7.50

7.50

7.25

INR/US$

77.5

75.9

76.3

76.2

78.0

80.0

80.0

Sensex

54,084

58,569

58,017

59,059

60,100

62,900

65,900

Sources: Bloomberg, CEIC, Capital Economics, *Q4 2021; **April; End of period


Heatwave damage, MPC minutes, WPI surge

India Economics Weekly

25 May 2022

Our view

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 well above the ceiling of the RBI’s 2-6% target range. The RBI has started its hiking cycle and we think rates will rise by more than the consensus is expecting over the next 12-18 months.

Latest Outlook

India Economic Outlook

Inflation will force the RBI’s hand

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 force the RBI to raise rates by more than most others are forecasting over the next 12-18 months.

13 April 2022