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We agree with financial market expectations and the analyst consensus that interest rates will stay on hold at the conclusion of the RBI’s meeting on 7th February – the first under the stewardship of Governor Shaktikanta Das. But Mr Das is likely to use …
30th January 2019
The IMF released its latest growth forecasts for India this week and, while we wouldn’t get too hung up on small differences in the numbers, the trajectory of growth that the Fund is forecasting seems too optimistic to us. Meanwhile, the appointment of …
25th January 2019
The finance ministry will be keen to include some election sweeteners in the interim budget that is due on 1st February. But it will also want to demonstrate fiscal rectitude. The most likely outcome is that the deficit target for FY18/19 is revised up …
24th January 2019
Election giveaways in India have been ramped up significantly this month, with small and medium-sized enterprises (SMEs) the main beneficiaries. Firms with annual sales of less than INR0.4m are now exempt from the Goods and Services Tax. Meanwhile, banks …
23rd January 2019
The relative weakness of the rupee is doing little to boost India’s exporters, who are finding it hard to capitalise given a weakening of global demand and their own capacity constraints. … Subdued outlook for …
18th January 2019
India’s merchandise trade deficit narrowed to a 10-month low in December and, with oil prices likely to fall further, we think the shortfall will shrink a little more over the coming months. In turn, that should help to keep the current account deficit at …
16th January 2019
The drop in headline consumer price inflation in December further diminishes the case for rate hikes in the near term. The RBI’s new governor seems keen to lower rates but, with core inflation still elevated, this would be a policy mistake. … Consumer …
14th January 2019
Headline wholesale price inflation eased in December, further undermining the case for any further rate hikes in the near term. But the appointment of a dovish new governor of the RBI means we are more concerned with the policy outlook further ahead. … …
The sharp drop in industrial production growth in November is in large part linked to the shift in the timing of the Diwali holidays last year. Near-term prospects for industry remain fairly upbeat. … Industrial Production …
11th January 2019
A report this week that the RBI will transfer an “interim” dividend to the government has been wrongly linked by some to the government’s efforts to get the central bank to hand over more of its cash to the finance ministry. Such transfers are a regular …
Economic growth in India has peaked in this cycle, but we expect it to remain strong ahead of the general election in the first half of this year. Thereafter, fiscal policy will need to be tightened and, with investment also likely to weaken, growth will …
10th January 2019
The recent weakness of headline consumer price inflation, which we think dropped a little further in December, has undermined the case for any further rate hikes in the near term. But we are more concerned with the policy outlook further ahead. After all, …
9th January 2019
The drumbeat of pre-election giveaways continues at the state level in the form of loan waivers and from the national government. These steps may be effective politically but they risk eroding policymakers’ credibility as guardians of fiscal and financial …
4th January 2019
India’s manufacturing PMI edged down in December, but the reading still indicates that the sector was performing well at the end of 2018. Looking ahead, prospects for local manufacturers remain fairly bright over the near term. … Manufacturing PMI …
2nd January 2019
The dust has barely settled from the state election results announced last week, but our prediction that they would trigger a spate of fiscal giveaways is already being borne out. Farmer loan waivers have been announced in several states and we think more …
21st December 2018
2018 has been a mixed bag for India’s financial markets. The bond market has seen significant gyrations, only for yields to end the year virtually flat from 12 months ago. Meanwhile, the 7% rise in the Sensex means it has outperformed most other major EM …
20th December 2018
Economic growth in India has peaked in this cycle, but we expect it to remain strong ahead of the general election in the first half of 2019. Thereafter, fiscal policy will need to be tightened and, with investment also likely to weaken, economic growth …
18th December 2018
India’s merchandise trade deficit narrowed a touch in November and, with oil prices likely to stay lower, we think that the deficit will shrink further over the coming months. … Trade deficit to narrow …
17th December 2018
Headline wholesale price inflation eased in November and, taken alongside the drop in CPI inflation last month as well as the appointment of an ally of Prime Minister Modi as the new governor of the RBI, a rate hike at the next policy meeting now looks …
14th December 2018
The state election results announced this week were a clear setback for Prime Minister Modi’s BJP, as they suggest that goodwill is fading ahead of next year’s general election. While we still think the BJP will win the general election, it is unlikely to …
Although industrial production growth remains strong and core inflation is staying elevated, with headline inflation down sharply and an ally of Prime Minister Modi, Shaktikanta Das, the new head of the RBI, the odds of a rate hike at the next policy …
12th December 2018
The first briefing from the RBI’s new governor, Shaktikanta Das, sought to provide assurance that the central bank will continue to prioritise inflation fighting. But his background at the finance ministry and as a Modi loyalist suggests that he is more …
A disappointing set of state election results for Prime Minister Modi’s BJP suggests that the ruling national party has lost some goodwill and the risk now is that, in response, fiscal (and potentially even monetary) policy is loosened ahead of the …
11th December 2018
The resignation of RBI Governor Urjit Patel signals that the government has come out on top in its dispute with the central bank, but at the cost of undermining the RBI’s credibility and its inflation-fighting credentials. The rupee has dropped 1.5% …
India’s current account deficit widened in Q3 but we don’t think this should reignite concerns over the external position. With oil prices having dropped sharply since then, the deficit will remain comfortable over the coming quarters. … Oil price drop to …
10th December 2018
Some have interpreted the small cuts to the statutory liquidity ratio announced by the RBI this week as evidence that the central bank is loosening policy, but we disagree. Meanwhile, the state election taking place in Rajasthan today is significant for a …
7th December 2018
Consumer price inflation is likely to have eased again in November due to a sharp drop in fuel price inflation. But with core inflation likely to remain elevated for a while yet, we think the tightening cycle still has a little bit further to run. … …
6th December 2018
The Reserve Bank of India (RBI) kept rates on hold today, but continued to flag several upside risks to the inflation outlook in its accompanying statement and maintained the hawkish description of its policy stance. As such, we think that the tightening …
5th December 2018
India’s manufacturing PMI jumped again in November, defying the drop in the PMI readings across most of Asia. Looking ahead, prospects for local manufacturers remain fairly bright over the near term. … Manufacturing PMI …
3rd December 2018
Indian GDP growth slowed in Q3 but remained strong by recent standards. The economy should continue to expand rapidly over the coming months, supported by looser fiscal policy ahead of next year’s general election. … GDP …
30th November 2018
The recent drop in corporate bond issuance has been taken by many as a sign that a rise in the risk premium since the debt default by IL&FS Group is constraining local firms’ ability to borrow. The concern from the macro-perspective is that this will …
The revised GDP data for the past decade that have just been released suggest that recent growth has been further above India’s sustainable rate than previously thought. This underlines why the government’s attempts to strong-arm the RBI into loosening …
29th November 2018
The recent drop in headline inflation, coupled with the sharp fall in global oil prices, should be enough to ensure that the RBI keeps policy rates on hold at the conclusion of its meeting on Wednesday 5th December. However, with core inflation still …
28th November 2018
The RBI’s highly-publicised board meeting passed without much incident this week, but this has by no means eased the tensions between the central bank and government, nor concerns over the RBI’s independence. The first test of the ceasefire is likely to …
23rd November 2018
As one of the world’s largest net importers of oil, India should be a key beneficiary of the recent slide in global oil prices. If prices remain lower, as we think likely, the oil import bill will fall and the current account deficit should shrink. We …
21st November 2018
The Reserve Bank of India (RBI) and the government found common ground on some of the points of contention between them at the Bank’s board meeting yesterday. But key issues remain unresolved, and the sense that the government is trying to strong-arm the …
20th November 2018
Indian media has been awash with reports this week that RBI Governor Urjit Patel could quit his post at the Bank’s board meeting on Monday. We think this is unlikely but if he were to resign, local markets would come under pressure. The extent of the …
16th November 2018
India’s merchandise trade deficit widened in October but we don’t think this should reignite concerns over the external position. With oil prices falling and the rupee having weakened in trade-weighted terms, we think that the deficit will narrow over the …
The rise in wholesale price inflation in October was due in large part to a jump in core inflation. With underlying price pressures set to remain elevated, we think the RBI’s tightening cycle still has a little further to run. … Wholesale Prices …
14th November 2018
Upcoming state elections in India will, as ever, have an important bearing on economic policy at the local level. They will also go some way to determining whether the ruling BJP will be able to gain control of the upper house of parliament, which on …
13th November 2018
A renewed drop in food inflation pulled down headline inflation in October, but with core inflation rising again we still think that the Reserve Bank’s tightening cycle has a little further to run. … Consumer Prices (Oct.) & Industrial Production …
12th November 2018
Consumer price inflation is likely to have eased in October following a renewed drop in food inflation. This may prove enough to keep the RBI on the side-lines in its meeting next month. But with core inflation likely to remain elevated for a while yet, …
8th November 2018
The benefits of the government’s demonetisation policy should be evident by now, two years after the shock announcement that the bulk of the country’s bank notes were being withdrawn. But the promised gains haven’t materialised and the positive …
5th November 2018
Rising tension between the government and the RBI has dominated headlines this week, and also caused jitters in local markets. This comes as little surprise - after all, at the heart of the matter is the independence of the central bank. Any erosion of …
2nd November 2018
India’s manufacturing PMI jumped in October, bucking the trend across most of Asia. Looking ahead, prospects for local manufacturers remain fairly bright over the near term. … Manufacturing PMI …
1st November 2018
The Indian government is treading on dangerous ground with a number of moves that could put the independence of the Reserve Bank of India (RBI) at risk. A loss of credibility for the central bank could jeopardise its efforts to rein in inflation, which …
31st October 2018
Data released this week show that bank lending to the private sector grew at its fastest rate since 2014 in September, and there are good reasons to think that the sustained pick-up since the start of the year has further to run. This should help in large …
26th October 2018
India’s shadow banking sector has been thrust into the spotlight over the past few weeks, triggered by news that the Infrastructure Leasing & Financial Services (IL&FS) Group is likely to miss several debt repayments this year. Fears over contagion in the …
24th October 2018
The minutes of the Reserve Bank’s October policy meeting show that, despite keeping rates on hold, the MPC continues to place great importance on preserving its recently-acquired credibility. With this in mind and given that core inflation is still …
22nd October 2018
In an effort to put its finances back onto the track set out in this year’s budget, the government is now considering ordering state-owned firms to initiate share buybacks, according to reports this week. Ultimately though, we suspect that the finance …
19th October 2018
