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Markets largely shrugged off the recent fall in the rupee to a record low against the US dollar, and were right to do so. With other EM currencies also weakening and inflation higher in India than elsewhere, the rupee still looks strong on broader …
30th November 2016
India is often heralded for demonstrating a new path to middle income by focusing on the development of its services sector rather than on significant industrialisation. It is true that India’s services sector has grown more rapidly than in most other …
28th November 2016
The government’s shock demonetisation announcement earlier this month was its boldest measure yet to tackle corruption and formalise large parts of the shadow economy, but it is unlikely to be the last. … Anti-corruption drive has further to …
24th November 2016
The government’s surprise demonetisation announcement has led to a sharp rise in bank deposits over the past couple of weeks. The rush of liquidity in the system has led to a fall in interbank rates, while commercial banks have stepped up their bond …
21st November 2016
Despite many anecdotal reports of turmoil in the wake of last week’s surprise demonetisation, and undoubted hardship for many, the early evidence suggests that the economic impact of the move has been surprising mild. This in turn implies that the fall in …
18th November 2016
Although the monthly trade deficit widened a touch in October, a number of factors should keep it in check over the coming months. This should keep India’s financial markets relatively secure in the event that global investor sentiment turns against …
15th November 2016
The further fall in India’s consumer price inflation last month, along with the likely shock to demand from the government’s withdrawal of most bank notes, is likely to increase the clamour for further rate cuts. But if the RBI pulls the trigger and …
Indian wholesale price inflation edged down in October, but we expect it to resume accelerating over the coming months. The big picture is that there is still little room for further policy loosening. … Wholesale Prices …
Industrial production data for September suggest that, in contrast to the upbeat message from the strong GDP data, Indian industry continues to struggle. … Industrial Production …
11th November 2016
The announcement late yesterday that India’s two largest denominations of banknotes have ceased to be legal tender with immediate effect is likely to weigh on economic activity in the near term, with sectors such as retail that are dependent on cash …
9th November 2016
Consumer price inflation is likely to have edged up in October, as the recent sharp slowdown in food inflation appears to have bottomed out. But with the central bank focused on supporting growth, the pick-up we are expecting won’t be large enough to …
7th November 2016
India’s manufacturing PMI rose in October to its highest reading in almost two years, with sentiment being boosted by progress on the reform front and the RBI’s surprise rate cut last month. Nevertheless, local manufacturers are still facing structural …
Confirmation that a consensus has been reached on the various rates of the new Good and Services Tax (GST) marks another important step towards its implementation. A multi-tiered GST is far from perfect, but this should come as no surprise. It is …
4th November 2016
With more than half of the fiscal year over, the government’s aim of raising nearly INR600bn through asset sales of various state-owned companies looks unrealistic. Faced with a number of state elections next year, including in India’s largest state, …
2nd November 2016
Another sharp rise in the non-performing loan (NPL) ratio in Q2 and recent stark warnings from the IMF have refocussed attention on India’s ailing banking sector. The Reserve Bank of India (RBI) has stepped up efforts to tackle the NPL problem, for …
28th October 2016
Much of the focus both before and after the RBI’s decision to cut the repo rate by 25bp (to 6.25%) in early October has been on the sharp fall in headline inflation over the past couple of months. But this has been due in large part to a drop in food …
25th October 2016
Indian bonds have continued to rally this month after the Reserve Bank of India (RBI) delivered a surprise rate cut and left the door open for further loosening. However, we fear that policy could be loosened too far and stoke inflationary pressures. If …
20th October 2016
While the RBI is probably correct in suggesting that global neutral interest rates have fallen, this does not necessarily mean that India’s own neutral rate has fallen too, as the RBI suggested when it recently cut policy rates. As such, there is a risk …
19th October 2016
Trade data for September showed the strongest annual growth in export values in almost two years. Looking ahead, exports should continue to recover, but the government’s target of nearly doubling export values from FY14/15 levels by FY20/21 still looks …
17th October 2016
Indian wholesale price inflation edged down in September, but we expect it to resume accelerating over the coming months. The big picture is that there is still little room for further policy loosening. … Wholesale Prices …
14th October 2016
The fall in India’s consumer price inflation rate last month is likely to fuel talk of further rate cuts. However, if the RBI pulls the trigger and loosens policy again, it could ultimately backfire and stoke inflationary pressure, which would force the …
13th October 2016
Industrial production data for August suggest that, in contrast to the upbeat message from the strong GDP data, Indian industry is still in the doldrums. … Industrial Production …
11th October 2016
Consumer price inflation probably eased in September, which may bolster the more dovish position the RBI adopted at its policy meeting this week. But a looser monetary stance is likely to add to inflation pressures over coming months, which could forcethe …
6th October 2016
Today’s surprise rate cut by the Reserve Bank of India sends a signal that the new governor and MPC will prioritise growth even at the risk of missing targets for inflation. That’s a break from the more hawkish stance of the previous governor, Mr Rajan, …
4th October 2016
The drop in India's manufacturing PMI in September provides a reminder that, despite progress on the reform front, local industry still faces significant headwinds. … Manufacturing PMI …
3rd October 2016
Concerns in some quarters over the slowdown in foreign direct investment (FDI) inflows in Q2 appear to be overdone. For a start, a smaller current account deficit means that India is now far less reliant on overseas borrowing to sustain domestic demand …
30th September 2016
Much of the commentary in the run-up to Dr Urjit Patel’s first policy meeting as RBI governor on 4th October has been focused on whether he will take on the mantle of his predecessor Raghuram Rajan, who was known for taking bold measures and surprising …
28th September 2016
The government’s announcement today of the names of three members marks another step towards the creation of a policy-setting monetary policy committee (MPC). The announcement also confirms that the MPC’s voting rights will be tilted slightly in favour of …
22nd September 2016
India’s current account deficit all but held steady at a low level in Q2, which leaves the economy well placed to weather any sudden shifts in global risk appetite over the coming months. … External vulnerabilities remain …
Progress in implementing the Goods and Services Tax (GST) since the bill was passed in parliament in early August has so far been fairly smooth. However, there are still a number of sticking points that need to be addressed before the GST can be rolled …
21st September 2016
The rupee has been stable against the US dollar in recent months. Looking ahead, suggestions that domestic factors, including calls from within government for a devaluation of the currency and the RBI’s maturing FX swap facilities, could lead to a …
20th September 2016
The monthly trade deficit narrowed a touch in August and, with a number of factors likely to keep commodity imports in check, the overall current account position is unlikely to return as a source of vulnerability any time soon. … Lower import bill will …
16th September 2016
Recent measures aimed at reinvigorating India’s domestic corporate bond market are likely to vary in their impact. But overall, the reforms should help to open a new source of financing for Indian firms. … Corporate bond reform could ease financing …
15th September 2016
Indian wholesale price inflation rose for the seventh consecutive month in August, and is set to accelerate further over the near term. This supports our view that there is little scope for further monetary loosening. … Wholesale Prices …
14th September 2016
The fall in India’s consumer price inflation rate last month brings it into line with the RBI’s near-term target. This may fuel talk of more interest rate cuts but we think that scope for further loosening is still very limited. … Consumer Prices (Aug.) & …
12th September 2016
The rapid expansion of the government deficit in the early part of this fiscal year is a common occurrence, as revenues tend to get ramped up in the latter months. However, unlike in previous years, there are a number of reasons to think that the Finance …
7th September 2016
CPI inflation data for August are likely to show that the headline rate eased a touch, but remained some way above the Reserve Bank’s 5.0% target for March 2017. With the new governor, Dr Urjit Patel, unlikely to alter this target or the target of 4±2% …
5th September 2016
The appointment of Dr Urjit Patel as the new governor of the Reserve Bank of India (RBI) gives a strong indication of policy continuity at the central bank, and strengthens our view that the easing cycle that began last year is now over. … How to think …
2nd September 2016
India’s manufacturing PMI rose in August, but the reading still only points to subdued growth in industrial output. The big picture is that local manufacturers continue to face structural constraints. … Manufacturing PMI …
1st September 2016
Today’s release of another set of strong GDP data will do little to dispel doubts aboutthe quality of the national accounts numbers. … GDP …
31st August 2016
The passage of the Goods and Services Tax (GST) bill this month, 10 years after its introduction, was arguably the biggest legislative victory to date for the Modi government. Looking ahead, the government must now refocus its attention on two other key …
The recent surge in sales of new vehicles is likely to have been driven by industry-specific policies to reduce pollution by taking old vehicles off the road rather than a more general boom in consumer demand. A number of other indicators suggest that …
26th August 2016
Over the past month, two key developments in India have given investors reason to cheer. The first is the passage of the long-awaited Goods and Services Tax (GST) bill, which could bring huge benefits to India’s economy in the medium term by simplifying …
23rd August 2016
The announcement over the weekend that Dr Urjit Patel, a current deputy governor, will take over as governor of the Reserve Bank of India (RBI) in September points to policy continuity and strengthens our view that the easing cycle is over. … Choice of …
22nd August 2016
Indian equities have rallied over the past few months. This reflects in part a broader pick-up across most major EM equity markets, but local factors such as evidence that the government’s reform agenda is gaining momentum have also helped. With …
18th August 2016
Indian wholesale price inflation recorded another sharp rise in July, and it looks set to accelerate further over the coming months. This supports our view that there is little scope for further monetary loosening. … Wholesale Prices …
16th August 2016
India’s monthly trade deficit narrowed in July and, with the government’s sovereign gold bond scheme helping to keep a lid on imports of the precious metal, the external position is unlikely to return as a major source of vulnerability any time soon. … …
15th August 2016
The sharp rise in Indian consumer price inflation in July pushes it further abovethe Reserve Bank’s 5.0% target for March 2017. Prospects for monetary policy depend in part on who is chosen to succeed Governor Raghuram Rajan at the RBI but, for now, we …
12th August 2016
There still appears to be some confusion over the potential market impact when the RBI’s FX swap facilities mature next month. The RBI has already confirmed that the maturing swaps have been covered by purchases of currency forwards. What’s more, even if …
10th August 2016
Governor Raghuram Rajan has developed a habit of surprising financial markets over the past three years, but there were no shocks in store in his final policy announcement today as the repo rate was left unchanged at 6.50%. Looking ahead, the prospects …
9th August 2016
