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India Economics Weekly

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

India Economics Weekly

Power shortages, new repo rate forecasts

The ongoing heatwave and related power shortages in India pose a downside risk to growth, but we think the biggest risk is the upside one to inflation. Indeed, rising price pressures prompted the RBI to turn even more hawkish and hike rates in an unscheduled announcement this week. Our repo rate forecasts were already more hawkish than the consensus but we've revised them up further.
China Drop-In (12th May, 09:00 BST/16:00 SGT): Join our China and Markets economists for a 20-minute discussion about near to long-term economic challenges, from zero-COVID disruptions to US-China decoupling. Register now.

6 May 2022
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India Economics Weekly

Consensus may still be playing catch up

Comments this week from MPC members strengthen our view that the repo rate will be hiked by 25bp (to 4.25%) in the next policy meeting in June. That view is now also shared by the consensus, which has also moved closer to our end-2022 and end-2023 forecasts. But as it stands, our views are still a touch more hawkish. And crucially, the chances of rates rising by more than even we expect appear to be growing.

India Economics Weekly

PM Johnson trip, NBFC clean up, WPI surges

Underpinning UK Prime Minister Boris Johnson’s visit to India are talks toward a free-trade agreement, which both countries are aiming to have in place before the end of the year. But the early indications are that any deal would have very limited macro impact. Meanwhile, the surge in wholesale price inflation in March is another indication that price pressures are rapidly building. That reinforces our view that the RBI will hike the benchmark repo rate in June.

India Economics Weekly

Inflation surge sets stage for June rate hike

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. With inflation set to rise further in the near term, we think the MPC will respond by hiking the repo rate in its June meeting. We are sending this Weekly one day earlier than usual because our offices are closed for Good Friday on Friday, 15th April.

India Economics Weekly

Russia relations, LIC IPO, RBI policy stance

Relations between India and Russia came under fresh scrutiny this week. But tentative signs that India is beginning to tread more carefully suggest that discounted Russian commodities are now even less likely to provide any relief for surging inflation. Indeed, the growing upside risks to inflation prompted the RBI to adopt a less accommodative policy stance at its meeting earlier today, and we expect the repo rate to be hiked before long.

India Economics Weekly

Price pressures are building

The main focus next week will be the RBI’s policy announcement on Friday. We think the MPC will leave its policy settings unchanged, but we still expect the committee to ditch its dovish tone later this year as inflation becomes more of a concern. Indeed, developments this week including further rises in fuel prices, an increase in the price of cooking oil imports, and the hike in the domestic gas price, highlight that price pressures are growing.

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