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The key policy development this month was the introduction of a new Standing Deposit Facility (SDF), through which the RBI will drain excess banking sector liquidity. The SDF now provides the floor for the interest rate corridor, previously set by the …
28th April 2022
The minutes of the MPC’s early April meeting – in which the committee kept the repo rate on hold but introduced a new rate that set a higher floor for the interest rate corridor – confirm that taming inflation has taken precedence over supporting the …
22nd April 2022
UK trade deal would have limited impact UK Prime Minister Boris Johnson’s two-day visit to India – which concludes today – has garnered plenty of headlines. Underpinning the visit are talks between PM Johnson and counterpart PM Narendra Modi towards a …
Upside risks to inflation are materialising 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. The …
14th April 2022
The narrowing in India’s goods trade deficit in March was due in large part to a sharp drop in gold imports. Even if gold imports remain low, we still expect the trade and current account deficits to widen this year given the jump in prices of other …
13th April 2022
Overview – 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 …
Inflation surges to 17-month high Headline consumer price inflation soared beyond even our above-consensus forecast in March and, given that it is likely to rise further over the coming months, we think the RBI will start hiking the benchmark repo rate …
12th April 2022
The RBI’s policy announcement and the introduction of the Standing Deposit Facility has prompted a number of questions from clients on its intended purpose and what it means for monetary policy. This Update aims to provide further clarity on the new …
11th April 2022
Pressure mounting on India-Russia relations Relations between India and Russia came under fresh scrutiny this week, with US officials warning of “significant and long-term” consequences if India moves towards a “more explicit strategic alignment” with …
8th April 2022
The MPC’s unanimous decision to keep the repo rate unchanged at 4.00% today came as no surprise but the introduction of a new policy rate that sets a higher floor for the interest rate corridor indicates a less accommodative policy stance. And with …
Omicron rebound continued, but inflationary risks growing India’s March PMIs show services as the bright spot last month as looser virus restrictions allowed activity to rebound. Unless COVID-19 cases pick up again, the outlook for the services sector …
6th April 2022
Higher commodity prices beginning to take a toll India’s manufacturing PMI dropped back in March as high commodity prices caused by the war in Ukraine began to take a toll on the sector. Given that fuel and gas prices have only climbed higher since the …
4th April 2022
Dovish RBI will need to tighten before long Watchers of India’s economy will be focussed on the RBI’s policy announcement at the conclusion of the MPC meeting on Friday 8 th April. Clients can read a full preview of the announcement in our RBI Watch …
1st April 2022
Industrial recovery faces new headwinds Output from India’s core infrastructure industries picked up in February as the Omicron wave subsided. But the surge in commodity prices as a result of the war in Ukraine is likely to squeeze profit margins and …
31st March 2022
Dovish MPC commentary suggests rates will stay on hold next week But inflation is likely to become more of concern over the coming months Repo rate likely to rise by more than the consensus expects this year Since the outbreak of the war in Ukraine, MPC …
30th March 2022
Rupee-ruble exchange would still lift oil import bill Indian authorities are in advanced discussions with their Russian counterparts over a rupee-ruble exchange system that would enable the two countries to continue trading even as Russia gets blocked …
25th March 2022
Wheat exports impact will be limited The disruption to the global wheat market caused by the war in Ukraine presents an opportunity to Indian exporters. India is the world’s second largest producer of wheat, but until recently virtually all of that …
18th March 2022
The surge in commodity prices as a result of the war in Ukraine will have several repercussions for India’s economy. As a major net commodity importer, its terms of trade will deteriorate and we think the current account deficit could reach almost 4% of …
17th March 2022
The surge in commodity prices brought about by the war in Ukraine will lead to a deterioration in India’s external position, with the current account deficit widening to almost 4% of GDP this year. While not as large as it was during the previous period …
16th March 2022
Commodity price surge will keep headline inflation high India’s consumer price inflation breached the RBI’s 6% ceiling in February, sooner than even our relatively hawkish forecasts had suggested. The surge in commodity prices will keep the headline rate …
14th March 2022
WPI inflation to remain elevated for a while yet Indian wholesale price inflation remained near historic highs in February, and it is likely to stay elevated in the near term given the recent surge in commodity prices. Headline WPI edged up from 13% y/y …
Industry holds up despite Omicron, but new headwinds emerge Indian industrial production held steady in m/m terms in January, supporting our view that the Omicron hit to the economy was small. But looking ahead, the surge in commodity prices as a result …
11th March 2022
Hit to GDP will come via net trade and investment We continue to write extensively across our services about the financial and economic implications of the war in Ukraine. All of our research on the topic can be found here . As a major net oil importer, …
The BJP’s performance in India’s state elections keeps it in a strong position nationally to pursue politically-difficult reforms. But it may instead conclude that its strong electoral showing was only possible because it backpedalled on contentious …
10th March 2022
Supply disruptions easing, but risks are high There are signs that supply disruptions in India have eased a touch. The PMIs for February released this week show that the backlog of works components have stabilised after rising sharply since the middle of …
4th March 2022
Omicron impact proves short-lived The rebound in India’s February PMIs suggests that activity is bouncing back as the Omicron outbreak subsides. And we think that there’s still significant scope for the economy to grow rapidly over the coming quarters. …
High commodity prices clouds outlook India’s manufacturing PMI rebounded in February as the Omicron outbreak subsided and containment measures were scaled back. But the threat of a continued rise in commodity prices as a result of the war in Ukraine is a …
2nd March 2022
Economy slowed at end of 2021 but strong growth likely this year Indian GDP data for Q4 (Q3 of FY21/22) show that economic growth was slowing before the Omicron wave hit. That outbreak will have caused activity to weaken further in the early stages of Q1. …
28th February 2022
Clients can find Capital Economics’ detailed coverage of the Russia-Ukraine crisis, including research on the potential impact on the global economy, energy markets, financial markets and Eastern Europe on our dedicated webpage here . For India, the key …
25th February 2022
Worries about India’s public debt trajectory have been growing since the Finance Ministry announced an accommodative Budget for FY22/23. But under reasonable assumptions for nominal GDP and interest rates, the Finance Ministry would not need to keep …
24th February 2022
Net portfolio outflows from Indian financial markets have picked up over recent weeks as the growing prospects of war between Ukraine and Russia and tighter global monetary policy have caused risk appetite to sour. Outflows from the equity market have …
23rd February 2022
LIC stake sale will boost public finances… Local media has been awash with commentary about the long-awaited initial public offering (IPO) of Life Insurance Corporation (LIC) after the state-owned behemoth this week submitted its draft prospectus. From a …
18th February 2022
Inflation likely to breach the RBI’s target soon Indian consumer price inflation reached the 6% ceiling of the RBI’s target range in January and, in contrast to the central bank, we think it will rise a bit further over the coming months. That will …
14th February 2022
The RBI’s policy announcement – in which rates were left unchanged – was the main event this week and our initial response can be found here . One key takeaway was that the Bank remains relaxed about the inflation outlook, even as inflation appears to be …
11th February 2022
The recent hawkish turn by many major central banks did not faze the RBI today, which continued to project a dovish tone while keeping policy settings unchanged. But inflation risks are building and we expect them to force the MPC’s hand before long. We …
10th February 2022
One of the more eye-catching elements of the Union Budget was the pledge that the RBI would introduce a Central Bank Digital Currency (CBDC) “starting 2022 and 23”. That would make the Reserve Bank a global front-runner. Many central banks are considering …
4th February 2022
We are forecasting a hike in the reverse repo rate next week as Omicron fears fade Repo rate hikes to follow before long as inflation rises above the RBI’s target Repo rate likely to rise by more than the consensus expects this year After months of …
3rd February 2022
Fallout from Omicron has been limited The drop in India’s PMIs in January suggest that activity weakened as the Omicron variant spread across the country. But the impact appears to be much less severe than that of the last two virus waves. And with new …
The upcoming election in Uttar Pradesh (UP) – India’s most populous state and one of its most politically important – is already having an impact on economic policy as contentious reforms have been put on the back burner over recent months. A poor …
2nd February 2022
Finance Minister Nirmala Sitharaman delivered a more growth-friendly Union Budget than most had expected today. But rather than unveiling measures to shore up support ahead of state elections, new spending plans are largely focused on ramping up capital …
1st February 2022
Finance Ministry likely to bank recent fiscal gains For watchers of India’s economy, next week is one of the most significant of the year as Finance Minister Nirmala Sitharaman delivers the Union Budget for FY22/23 on Tuesday. Unusually, the fiscal …
28th January 2022
The rapid spread of the Omicron variant in India has caused economic activity to weaken so far in 2022. But the damage has been much less severe than during the previous two outbreaks. (See Chart 1.) Perhaps unsurprisingly, airport traffic has been one of …
27th January 2022
Virus cases peaking in parts of India Daily COVID-19 cases in India are still rising sharply and are now around an eight-month high. But encouraging signs are emerging in the state-level data. New infections have stabilised in Maharashtra, and they have …
21st January 2022
Overview – India’s Omicron wave should only be a temporary setback to the economic recovery. As long as recurrent large waves of COVID are avoided, we think that economic growth will be faster this year than last. We also think that inflation will soon …
19th January 2022
Halfway to the peak? India’s third virus wave is still building rapidly. New COVID-19 cases have doubled over the past week, with the Omicron strain likely driving the surge. The good news is that the impact on healthcare remains manageable. For example, …
14th January 2022
Inflation likely to breach the RBI’s target in Q1 Indian consumer price inflation took a big step towards the 6% ceiling of the RBI’s target range in December. We think it will breach the ceiling soon and that the RBI will remove some policy support. …
12th January 2022
Korea, the Philippines and India are each holding elections this year that will play a role in setting fiscal and structural reform priorities, including the possible introduction of a universal basic income in Korea. And China looks set to tear up the …
10th January 2022
Economic impact of a third wave may be limited New daily COVID-19 cases in India have surged fifteen-fold in the last two weeks to their highest since June. The Omicron variant has been identified as the dominant strain in several parts of the country, …
7th January 2022
As long as recurrent large waves of COVID are avoided, we think that Indian GDP growth will accelerate this year. At the same time, inflation is likely to rise more sharply than generally expected. The result is that policy rates will be hiked by more …
5th January 2022
Recovery ongoing but surge in infections raises downside risks India’s PMIs remained buoyant in December, suggesting that activity continued picking up towards the end of 2021. We think the recovery will gain momentum this year but a recent sharp jump in …
