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India’s goods trade deficit didn’t widen in the immediate aftermath of Russia’s invasion of Ukraine – rather counter-intuitively for a major commodity importer. But that has now started to happen, and a closer look at the data suggests the deficit may …
16th June 2022
The RBI hiked the repo rate by 50bps to 4.90% today, as we had anticipated, and made substantial upward revisions to its near-term inflation forecasts. Further tightening will follow over the coming months. But we also expect policymakers to step up …
8th June 2022
Headline CPI inflation in India is likely to have dropped in May, primarily due to base effects. But beyond May, we expect inflation to resume rising, reaching over 8% by August. The RBI is likely to respond by frontloading policy tightening in the coming …
7th June 2022
Measures unveiled by Finance Minister Nirmala Sitharaman over the weekend including a cut to excise duties on petrol and ramping up of fertiliser subsidies should offer a small reprieve to households dealing with the sharp rise in fuel and food prices. …
23rd May 2022
The Indian rupee hit a record low against the US dollar today, but the big picture is that RBI intervention has helped it hold up better than most EM currencies recently. Given that the RBI has ample FX reserves, we expect the rupee to remain more stable …
9th May 2022
The Reserve Bank today turned even more hawkish with an unscheduled, unconventional 40bp hike that takes the repo rate to 4.40%. We had been among the early hawks on Indian monetary policy and were already expecting more rate hikes than the consensus this …
4th May 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
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
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
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 …
8th April 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
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
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
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
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
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
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
The MPC voted to keep policy rates on hold today, opting only to introduce further small measures to withdraw liquidity from the banking sector. With the RBI still focusing primarily on supporting the fragile economic recovery, we continue to think that …
8th December 2021
The pandemic has triggered a three-fold increase in the use of mobile payments in India. It is unclear whether there has been a corresponding broadening in the number of people using cashless payment. Demonetisation, five years ago this week, also …
11th November 2021
Relative to budget estimates, the cumulative fiscal deficit in rupee terms is much smaller than normal for this time of year, due in large part to decent tax revenues. We think the Finance Ministry will use the tax windfall to rein in the overall budget …
1st November 2021
The minutes of the Reserve Bank’s October policy meeting suggest greater divergence of opinion within the MPC, with two members calling for more definitive steps towards policy normalisation. But most members – including Governor Shaktikanta Das – are …
25th October 2021
The sharp widening in India’s goods trade deficit in September was driven in part by an unusually large jump in oil imports that we think will prove a one-off. And with the economic recovery entering a slower phase, imports more generally are unlikely to …
15th October 2021
The Reserve Bank kept the repo rate on hold at a record low today and stressed that its latest liquidity-withdrawal measures do not constitute policy tightening. Given our view that the recovery will only be back on more solid footing next year, we …
8th October 2021
Measures by the Reserve Bank to drain banking sector liquidity have caught attention over the past few days. But with liquidity still abundant, interbank rates at the very bottom of the rate corridor and financial conditions exceptionally loose, these …
14th September 2021
This year’s monsoon has so far been weaker than usual. This won’t have as big an economic impact as it would have a couple of decades ago. But it will harm employment and energy production. Some comfort can be taken from the fact that food inflation is …
7th September 2021
The minutes of the Reserve Bank’s August policy meeting show the first signs of dissent as MPC member Jayanth Varma argued that a hike in the reverse repo rate and a change in policy stance would be prudent to show that the committee remains committed to …
23rd August 2021
The widening in India’s goods trade deficit in July was due in large part to the continued rebound in imports as containment measures were scaled back further. The trade deficit may widen a little further over the coming months but the big picture is that …
16th August 2021
The Reserve Bank kept the repo rate on hold at a record low today and announced plans to ramp up government bond purchases on the secondary market, underlining its commitment to supporting the economic recovery. We don’t expect policy normalisation to …
6th August 2021
The postponement of the planned privatisation of two state-owned banks to next year has dealt an all-too-familiar blow to the Finance Ministry’s hopes of raising significant revenues from asset sales in FY21/22. Rather than relaxing the overall fiscal …
3rd August 2021
The widening in India’s goods trade deficit in June came on the back of a rebound in imports amid the lifting of containment measures and the recent rally in global oil prices. But while the economic recovery has further to run, we think that oil prices …
16th July 2021
The government’s latest vaccine supply projections suggest that India could fully vaccinate all adults by year end. But that hinges on optimistic assumptions about production and distribution. Unless supply and logistical issues constraining the rollout …
7th July 2021
The recent jump in India’s consumer price inflation has taken us (and most others) by surprise and we have revised up our near-term forecasts. However, a big chunk of the surge – even in the most closely-watched core measure – can be explained by rising …
22nd June 2021
India’s goods trade deficit narrowed to an eight-month low in May as exports held up much better than imports. Strong external demand will help to offset some of the damage to domestic demand caused by the virus surge and ramping up of containment …
16th June 2021
Remittance flows into India have been resilient in recent months and, with employment prospects for Indian migrants looking better than a year ago, they should continue to hold up well. That should provide some much-needed support for the economic …
9th June 2021
The Reserve Bank kept the repo rate on hold at a record low today and announced plans to ramp up government bond purchases on the secondary market, underlining its commitment to supporting the recovery. With the economy likely to take time getting back to …
4th June 2021
There is typically more scope for female participation rates to rise and boost labour supply in EMs. This is particularly so in India and is one reason why we expect its economy to outperform in the long run. Increasing female labour force participation …
19th May 2021
Goods trade data for April add to evidence from elsewhere that that the new round of virus restrictions has not been as economically disruptive as the national lockdown last year. India’s goods trade deficit widened from $13.9bn in March to a four-month …
17th May 2021
Real-time data indicate that industry in India has not been hit as severely as services, and is holding up well compared to a year ago. That’s a reflection of the more targeted restrictions that have so far been introduced. But there is also evidence of …
10th May 2021
The impact of India’s COVID-19 crisis on other EMs through normal economic channels such as trade and financial links should be manageable. The more serious impact will come through delays to vaccine rollouts, particularly for countries in South Asia and …
5th May 2021
In an unscheduled announcement today, RBI Governor Shaktikanta Das unveiled an array of measures aimed at mitigating the economic and financial impact of India’s virus crisis. This Update takes stock of those measures and outlines what they might mean for …
Results of the state elections that have been taking place over the past couple of months are unlikely to have undermined the BJP’s willingness to implement difficult economic reforms, particularly given its victory in Assam. But at the same time, the …
3rd May 2021
Real-time data on traffic, electricity demand and mobility suggest that, so far at least, India’s virus outbreak has had more of an impact on behaviour than it has on activity. We will continue to keep close tabs on the high-frequency data over the coming …
27th April 2021
The minutes of the Reserve Bank’s April policy meeting – in which interest rates were left unchanged – show that the MPC is committed to keeping policy accommodative to support the economic recovery. The surge in virus cases since that meeting is only …
23rd April 2021
The widening in India’s goods trade deficit in March came on the back of a surge in monthly gold imports to its highest on record. But this was driven in part by one-off factors. Looking ahead, we expect gold import values to remain contained over the …
15th April 2021
The MPC voted to keep the repo and reverse repo rates on hold today amid the surge in COVID-19 cases, and committed to keeping policy “accommodative to support and nurture the recovery”. Given this, we continue to think that markets are too hawkish in …
7th April 2021
The rise in new COVID-19 infections to a six-month high yesterday has predominantly been limited to one state. But there are signs that the virus is spreading rapidly to other parts of the country and, with the vaccine rollout proving slow-going, the …
1st April 2021
Parliament’s approval this week of a loosening of restrictions on FDI in the insurance sector will not have a significant macro impact, but it provides reassurance that FDI reform remains a priority for the government. That bodes well for India’s external …
25th March 2021
A rise in headline consumer price inflation over the coming months will do little to temper growing market expectations of imminent rate hikes. But it will largely be driven by fuel price inflation, which the RBI should look through. Further ahead, a …
24th March 2021
The narrowing in India’s goods trade deficit in February is likely to soon reverse as the recovery in domestic demand and oil prices pushes up imports. But while this means that India’s recent current account surplus is unlikely to last for long, the …
16th March 2021