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Sharp drop in headline inflation may hasten end of tightening The sharper-than-expected drop in headline CPI inflation in November (to 5.9% y/y) pulls it below the ceiling of the Reserve Bank’s 2-6% target range for the first time in almost a year. We …
12th December 2022
BJP win in Gujarat could boost reform agenda The incumbent BJP, under the leadership of Chief Minister Bhupendra Patel, secured a massive victory in the state election in Gujarat. The results announced on Thursday showed that it increased its assembly …
9th December 2022
Overview – The RBI has slowed the pace of rate hikes and is likely to call a halt to tightening in early 2023. As the economy weakens, rate cuts could come onto the agenda by late next year and materialise in early 2024, several months sooner than the …
8th December 2022
The RBI slowed the pace of monetary tightening with a 35bp hike to the repo rate (to 6.25%) and, with headline inflation set to ease further and growth entering a softer patch, we think the central bank will call a halt to tightening in February. Further …
7th December 2022
RBI slows the pace of tightening The RBI slowed the pace of monetary tightening with a 35bp hike to the repo rate (to 6.25%) and, with headline inflation set to ease further and growth entering a softer patch, we think the central bank will call a halt to …
Valuations may stall equity outperformance India’s Sensex hit a fresh record high of 63,000 this week (see Chart 1), continuing its remarkable performance over the past few months in the context of the sell-off in equities elsewhere in the world. The …
2nd December 2022
Indian manufacturing continues to buck the regional trend India’s manufacturing PMI edged up in November and continues to buck the weaker regional trend. The survey also indicates that price pressures are easing, reinforcing our view that the RBI is now …
1st December 2022
Economy holds up in Q3, but higher rates now taking a toll While base effects caused a sharp slowdown in headline GDP growth in India in Q3 (Q2 of FY22/23), growth held up well in quarter-on-quarter terms. However, there are signs in more timely activity …
30th November 2022
Pace of tightening to slow as growth comes off boil and inflation passes the peak 25bp hike to repo rate likely next week, and cycle to draw to a close by early-23 Rate cuts could come onto the agenda by late next year With inflation having passed the …
29th November 2022
Manufacturing powerhouse takes to the polls We’ve previously written at length about why state elections in India matter for economic policy . The upcoming vote in Gujarat – due to take place between 1 st and 5 th December with results expected on the 8 …
25th November 2022
The RBI has hiked interest rates by 190bps since May and, while that is relatively benign compared to the moves seen in many other EMs, this tightening is now feeding through to the economy. Purchases of big ticket items such as passenger vehicles have …
21st November 2022
Domestic demand coming off the boil Recent data paint a mixed picture of the state of domestic demand. On the one hand, survey evidence remains relatively upbeat. The PMI readings for India have recently held up much better than in most other EMs and …
18th November 2022
Prices pressures are moderating in earnest The substantial falls in both headline consumer and wholesale price inflation in October reinforce our view that the Reserve Bank will slow the pace of monetary tightening in its next scheduled policy meeting in …
14th November 2022
Industry rebounds, but headwinds growing Industrial production in India rebounded strongly in September, but we don’t expect this strength to last. Higher interest rates and the slowdown in global demand look set to weigh heavily on the sector over the …
11th November 2022
Power sector appears to be managing coal better Power shortages just over a year ago prompted a push by the government to shore up coal supply. Among the changes was a revamp of benchmarks for the stocks of coal that power stations should hold. …
While mobile and other digital payment methods are still used less in India than in many EMs, the rapid expansion initially triggered by the pandemic has continued over the past year. A well-developed payments infrastructure should support continued …
9th November 2022
Recent data tell a conflicting story about the health of India’s export sector. The new export orders component of the manufacturing PMI released this week rose to 56.6. It has only been higher on one occasion since the start of 2015 . By contrast, the …
4th November 2022
The RBI’s out-of-cycle meeting today concluded with no decision on interest rates. That’s no surprise – it was called for administrative reasons, rather than as a response to changing economic conditions. We believe that further tightening will still be …
3rd November 2022
Manufacturing activity remains resilient India’s manufacturing sector appears to have bucked the weaker regional trend, with an increase in its PMI last month. There was nothing in today’s release to dissuade the RBI from further tightening. The …
1st November 2022
The RBI announced this week that it will hold an “additional” MPC meeting on Thursday 3 rd November. It’s not unusual for the committee to convene between scheduled meetings (the next meeting was due to take place in early December). Indeed, “emergency” …
28th October 2022
Since independence, India has preferred to stay unaligned geopolitically. But in a fracturing global economy, the security and macroeconomic benefits of leaning towards the US – and away from China – may prove too compelling for India to remain on the …
24th October 2022
Limited macro fallout from sliding rupee The rupee has this week continued its slide against the US dollar, dropping to a record low of 83/$ on Thursday. As has been the case over the past few months, this has been the trigger for a series of alarmist …
21st October 2022
The RBI continued frontloading policy tightening in its late-September meeting with another 50bp hike to the repo rate (to 5.90%) but communications since then suggest that some MPC members are ready to ease off the brakes. The minutes to that meeting …
19th October 2022
Apple production shift boosts local manufacturing Regular readers of our India research will be (perhaps all-too-) familiar with our view that the key to India sustaining rapid economic growth over coming decades is the development of its manufacturing …
14th October 2022
Wholesale inflation drops to 18-month low The fall in Indian wholesale price inflation to an 18-month low in September comes as welcome news following the stronger-than-expected consumer price data released earlier this week. And with headline CPI …
Overview – The RBI has frontloaded policy tightening over recent months but with inflation peaking and economic headwinds building, we think the central bank will now slow the pace of tightening and revert to 25bp hikes. Our forecast is for the repo rate …
13th October 2022
Headline inflation rises, but now set to drop back The rise in headline consumer price inflation in September to further above the RBI’s 2-6% target range challenges our view that the RBI will slow the pace of tightening. But with food and energy …
12th October 2022
The rise in headline consumer price inflation in September to further above the RBI’s 2-6% target range challenges our view that the RBI will slow the pace of tightening. But with food and energy inflation now set to lastingly drop back and growth likely …
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
JP Morgan announcement won’t impact inflows After weeks of media speculation over an imminent addition, it was announced on Wednesday that India’s local-currency bonds will not be included in JP Morgan’s GBI-EM Global Diversified Index for the time …
7th October 2022
Economy holding up amid policy tightening India’s PMI readings moderated in September but the more important point is that they still indicate healthy growth in both manufacturing and services. The RBI will remain comfortable tightening policy over the …
6th October 2022
C/A deficit widens to multi-year high Data released this week show that India’s current account deficit widened to 2.8% of GDP in Q2, its largest since 2013. The data can however be volatile, so we prefer to take a longer perspective. In the year to Q2, …
30th September 2022
The RBI hiked the repo rate by another 50bp (to 5.90%) today and the communications give a clear steer that the tightening cycle still has further to run. But with inflation set to slow, we think the central bank will now revert to hikes of 25bp …
RBI continues to frontload tightening The RBI hiked the repo rate by 50bp for the third meeting in a row today, taking it to 5.90%. Further rate hikes are likely over the coming months but, with inflation set to slow, we think the central bank will now …
Drop in FX reserves not a macro concern Data to the first week of September show that the RBI’s FX reserves have dropped in value to US$550bn, the lowest level in almost two years. (See Chart 1.) While part of that is a valuation effect, it is mainly …
23rd September 2022
Renewed inflation rise should seal another 50bp hike next week Pace of tightening to slow thereafter Repo rate to rise a little more than the consensus expects by early 202 We expect the MPC to continue frontloading policy tightening with another 50bp …
22nd September 2022
The RBI this month asked four public-sector banks to trial its central bank digital currency (CBDC) before year-end, keeping to the timeline that it set out when plans were first announced in the FY22/23 Union Budget. As our CBDC handbook explains, any …
21st September 2022
Goods trade deficit set to narrow further… Data released this week confirmed that India’s merchandise trade deficit retreated from a record high (in dollar terms) of US$30bn in July to US$28bn in August. This was driven in large part by a drop in oil …
16th September 2022
India is facing renewed concerns about energy supply, fuelled by low inventories of coal. With the economy very reliant on coal for electricity generation, persistent shortages would almost certainly weigh on the economy while also stoking price pressure. …
13th September 2022
Rise in headline CPI rate should ensure another 50bp rate hike this month The rise in Indian CPI inflation in August to further above the RBI’s 2-6% target range should ensure that the central bank delivers another 50bp hike to the repo rate (to 5.90%) in …
12th September 2022
Rise in headline rate paves way for another 50bp hike this month The rise in Indian CPI inflation in August to further above the RBI’s 2-6% target range should ensure that the central bank delivers another 50bp hike to the repo rate (to 5.90%) in its …
Index inclusion won’t transform outlook for bonds If media reports this week are to be believed, Indian local-currency bonds are on the cusp of being included in JPMorgan’s GBI-EM Global Diversified Index. Some are suggesting that this could happen this …
9th September 2022
Emerging markets will account for more than half of global GDP within the next decade. Headlining this, India is on course to become the world’s third largest economy by 2030. And EMs with rapid population growth, healthy manufacturing sectors or those …
6th September 2022
New GDP forecasts GDP data released this week showed that growth surged from 4.1% y/y in Q1 to 13.5% y/y in Q2 (Q1 of FY22/23). But on our own seasonal-adjustment, that implied a gain of only 0.1% q/q. That seems improbably small given the strength of …
2nd September 2022
Manufacturing activity remains robust India’s manufacturing PMI moderated a touch in August but the more important point is that the reading is still consistent with robust growth in the sector. The RBI will remain comfortable tightening policy and we …
1st September 2022
Growth disappoints, but won’t derail policy tightening Base effects caused a surge in headline Indian GDP growth in Q2 (Q1 of FY22/23), but underlying growth slowed relative to Q1. As a result, GDP growth won’t reach 9% in 2022 as we had thought. That …
31st August 2022
The Indian rupee has continued its long-run trend of depreciation against the US dollar this year, taking it to a record low of 80/$. It may still weaken further in the near term. However, there are reasons to think that that the rupee will reverse …
GDP data for Q2 (Q1 of FY22/23) due next week should show that the economy grew at a robust pace last quarter despite the onset of monetary policy tightening. And more timely indicators suggest that the economy has held up well so far in Q3 too. The …
26th August 2022
Foreigners’ net purchases of Indian equities have surged to near record levels in recent weeks. On a one-month rolling basis, inflows have only been higher in US dollar terms on one occasion, in December 2020. (See Chart 1.) Chart 1: Foreigners’ Net …
Core inflation to offset falls in food & energy CPI data for July released last Friday indicated that the upside risks to food inflation we flagged earlier this year have not materialised. As we noted, food prices fell by 0.7% m/m in seasonally-adjusted …
19th August 2022
