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The minutes of the Reserve Bank’s February policy meeting – in which interest rates were left unchanged – show that the MPC remains cautious on the inflation outlook but that it is also committed to keeping policy accommodative to ensure that the economic …
23rd February 2021
The narrowing in India’s goods trade deficit in January 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, we still …
16th February 2021
Almost a month since the start of India’s vaccination drive, it appears highly unlikely that the government will meet its target of inoculating 300m people by August. For now, we maintain our assumption that it will take much longer to vaccinate the most …
10th February 2021
The MPC voted to keep the repo and reverse repo rates on hold today but committed to keeping policy “accommodative” for the foreseeable future. We no longer expect any more rate cuts, but markets are too hawkish in expecting modest rate hikes within the …
5th February 2021
By bringing large off-balance sheet expenditures back into official spending plans and setting more realistic targets for revenues, the Finance Ministry has presented a more credible Union Budget for FY21/22 than has been the case for several years. While …
2nd February 2021
India’s Finance Ministry set aside the desire for near-term fiscal consolidation and today announced significant stimulus in the FY21/222 union budget. That should support the economic recovery over the coming quarters, albeit at the cost of putting …
1st February 2021
The widening in India’s goods trade deficit to an 18-month high in December still has further to run, particularly as a recovery in both domestic demand and global oil prices pushes import values higher. That would be enough to tip India’s recent current …
18th January 2021
India’s current account is likely to swing from an unprecedented surplus in 2020 back into deficit in 2021 as domestic demand rebounds and oil prices continue to recover. But when it does return, the deficit should remain small. And with capital inflows …
4th January 2021
India’s goods trade deficit widened again in November and is set to reach its pre-pandemic levels over the coming months, especially given recent positive developments on a COVID-19 vaccine. But we think the external risks will remain manageable. The …
16th December 2020
The RBI kept the repo and reverse repo rates on hold today and made an explicit commitment to keep policy “accommodative” for the foreseeable future. Markets are too hawkish in expecting modest rate hikes within the next 12-18 months. The MPC’s unanimous …
4th December 2020
The distribution of an effective COVID-19 vaccine in India would significantly improve the near-term economic outlook, and we have revised up our GDP forecasts for 2021 and 2022. But the economy will still suffer repercussions from the crisis over the …
30th November 2020
The rebound in investment in India appears to have been stronger than anticipated over the past few months and we are revising up our estimates of Q3 GDP growth as a result. But the recovery faces several headwinds, meaning that investment will remain …
17th November 2020
India recorded its largest monthly goods trade deficit since the start of the pandemic in October as the export recovery came to an abrupt halt. Looking ahead, unlike much of Asia, India will not benefit much from strong global demand for electronics and …
16th November 2020
Talks to establish the world’s biggest free-trade agreement, the Regional Comprehensive Economic Partnership (RCEP), are finally expected to conclude at the weekend. While a deal would provide a boost to sentiment, the direct economic benefits would be …
12th November 2020
The BJP’s relatively strong performance in the state election in Bihar suggests that goodwill for the ruling national party remains intact amid India’s largest recession in modern history. Bihar has also been one of the states to recently implement labour …
11th November 2020
The Finance Ministry’s response to the pandemic has been even smaller than we initially thought. Announced stimulus measures were already meagre in size. It now appears that their impact has been partially offset by a pullback in other forms of government …
2nd November 2020
Out of all the banking sectors in major economies, India’s warrants the most concern. It came into the crisis in the worst shape, and the scale of damage to private balance sheets means it will be one of the hardest hit from rising defaults. Policymakers …
29th October 2020
The minutes of the Reserve Bank’s October policy meeting – in which policy was left unchanged – show that the MPC has turned more dovish on the inflation outlook and that it has reservations about the strength of the economic recovery. This reinforces our …
26th October 2020
It came as no surprise that the new MPC voted unanimously to keep the repo and reverse repo rates on hold today. But the relatively dovish tone of the statement, along with the dire growth outlook, mean we remain comfortable with our non-consensus view …
9th October 2020
After dragging its heels for several weeks, the government has finally appointed three new members to the RBI’s monetary policy committee (MPC). Not a great deal is known about their views on monetary policy but, given that the MPC tends to follow the …
6th October 2020
The narrowing in India’s goods trade deficit in September came on the back of a decent pick-up in external demand, while domestic demand showed encouraging signs of improvement too. But sustaining the pace of recovery in both will be difficult. India’s …
5th October 2020
If ever there were a sign of how extraordinary economic developments have been this year, India recorded a stonking current account surplus in Q2. This is unlikely to last long, as oil prices will rebound, remittances drop and the goods trade deficit has …
30th September 2020
Success in bringing the COVID-19 outbreak under control in Pakistan, Sri Lanka and to a lesser extent Bangladesh has enabled activity in these places to rebound much faster than in India, where new infections continue to surge. This supports our view that …
22nd September 2020
The widening in India’s goods trade deficit in August won’t put the external position at risk, but the underlying data suggest that the recovery in external and domestic demand is stuttering. India’s monthly goods trade deficit widened from $4.8bn in July …
16th September 2020
The use of traditional monetary policy tools alongside financial repression will keep government borrowing costs in India in check over the coming years. That should help to ensure that only modest fiscal tightening will be needed to put the public debt …
9th September 2020
Ongoing virus-related supply disruptions as well as one-off factors such as phone tariff hikes have kept inflation higher than we had anticipated over recent months. But with food inflation set to drop sharply and demand set to remain depressed, we are …
2nd September 2020
While some of the early epicentres of the coronavirus outbreak in India now appear to be getting infections under control, cases are rising quickly in several states that avoided an initial surge. This means more restrictions covering wider areas will …
27th August 2020
The minutes of the Reserve Bank’s August policy meeting show that the MPC – of which three members are now due to step down – has turned notably more hawkish on the inflation outlook. But there are reasons to think that inflation pressure will ease and, …
21st August 2020
India’s monthly goods trade balance swung back into deficit in July, but the fact that it remains small means that there is little concern regarding external stability. Nevertheless, the underlying data continue to show that both external and domestic …
17th August 2020
The recovery in India’s industrial sector has stalled. Given the substantial damage caused during the lockdown and the likelihood of a re-imposition of containment measures, the road to normality for the sector will be long and difficult. Data released …
12th August 2020
The only new step taken by the RBI today was the introduction of a new framework to help struggling borrowers manage their bank debt. The MPC voted unanimously to keep the repo and reverse repo rates on hold. But, with the growth outlook worsening amid …
6th August 2020
India’s monthly trade balance swung into its largest monthly surplus on record in June. But this is not something to celebrate since it is the result of continued weakness in domestic demand. Data released late yesterday show that the monthly goods trade …
16th July 2020
The slump in industrial production eased in May, confirming that the recovery in industry is now underway. But given the likelihood of a renewed tightening in containment measures and the substantial damage already caused during the lockdown, the road to …
13th July 2020
Daily price data suggest that food inflation has eased over recent weeks and, with demand also likely to remain depressed, inflation does not appear to be a pressing concern. The focus of policymakers should therefore be to support the economy as much as …
9th July 2020
India’s current account swung into a rare surplus in Q1. That probably won’t last for long as oil prices rebound, remittances drop and the trade deficit starts to widen again over the coming months. But the deficit is likely to remain very small. And with …
1st July 2020
Recent developments have strengthened the ruling BJP’s hand in the Rajya Sabha (the upper house of parliament). This should help to ease the passage of economic reforms, provided that the BJP has the appetite to pursue them. Efforts over the past month to …
22nd June 2020
Worsening employment prospects for Indian migrants in the Gulf and the US mean that remittance inflows are likely to drop even as lockdowns are eased. While this won’t have severe ramifications for the balance of payments position, it will weigh on …
17th June 2020
The slight easing in the y/y contraction in goods exports and imports in May supports evidence from elsewhere that the worst has now passed for the economy. But both remain extremely weak, and a sharp improvement appears unlikely as external and domestic …
16th June 2020
Industrial output ground to a halt in April but high-frequency indicators including electricity consumption and air pollution levels suggest that activity has edged up since then. However, lasting damage from the lockdown and the threat of further sharp …
15th June 2020
Lockdowns are being eased in India, Pakistan and Bangladesh without any sign that coronavirus infections are being brought under control. Economic recoveries will face greater headwinds than in places where the virus has been contained as a result. But …
9th June 2020
The minutes of the Reserve Bank’s late May policy meeting – in which it trimmed both the repo and reverse repo rates – show that the MPC has become markedly more bearish on the outlook for economic growth amid the coronavirus containment hit. And with …
8th June 2020
Daily price data give a strong indication that food inflation dropped in May, most likely as supply disruptions eased a touch and agricultural activity was allowed to resume. With global oil prices low and domestic demand collapsing, there is little …
4th June 2020
Prime Minister Modi’s BJP has expedited structural reforms that normally face stiff political resistance, ostensibly as part of efforts to support recovery from the coronavirus crisis. These moves will do little to boost demand in the near term. But if …
2nd June 2020
Amid the severe economic damage that the coronavirus and containment measures have caused, one potential positive is the greater prevalence of cashless payments as people make more purchases from home or transfer less physical cash to prevent the virus …
28th May 2020
The RBI has further stepped up its response to the collapse in economic activity from the coronavirus and containment measures in another emergency announcement today. The central bank has also left the door open for further loosening and, with the …
22nd May 2020
The final details of the stimulus package reinforce our initial take that, while helpful in limiting downside risks to the economy, it will do little to boost demand in the near term. With the lockdown also being extended again (until the end of May), a …
18th May 2020
The 60% y/y contraction in goods exports and imports in April highlights the extreme weakness of external and domestic demand. This will probably mark the bottom as restrictions on activity are gradually pared back in India and the rest of the world, but …
The new fiscal stimulus will substantially push up India’s already-high public debt ratio. Policymakers may have to resort to unusual steps to keep borrowing costs in check, including further financial repression and a return to partially monetising the …
14th May 2020
Prime Minister Modi’s 10% of GDP support package sounds impressive but the details just announced make clear that it has been bulked out for effect. Extra demand-boosting measures are worth less than 4% of GDP. The new support limits the downside risks …
13th May 2020
Industrial output slumped in March and more timely evidence from the manufacturing PMI, electricity consumption and vehicle production strongly suggest that the sector has come to a near standstill in April and May. What’s more, with lasting damage …
12th May 2020