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The RBI announced some measures to boost bank liquidity in a hastily-arranged press conference today but disappointed the bond market by not lowering policy rates. With the coronavirus a growing threat to domestic activity, we think rates will be trimmed …
16th March 2020
Drop in WPI inflation increases rate cut chances amid virus threat The drop in wholesale price inflation in February is an added source of comfort for the RBI following the fall in CPI inflation last month. We think it will follow its global peers by …
India’s merchandise trade deficit narrowed to a one-year low in February and the collapse in oil prices since then should push the deficit even lower in the months ahead. As such, we now expect the current account to swing into surplus – a crucial …
Travel ban only the start of tougher measures The government’s announcement this week that it will suspend virtually all foreign visas for at least 30 days in a bid to contain the spread of the coronavirus won’t in itself have a major bearing on the …
13th March 2020
The plunge in oil prices over the past week means there’s a good chance that India records a rare current account surplus over the coming quarters. This should help to ensure that the rout in local financial markets – trading on the Sensex had to be …
Drop in headline inflation sets scene for renewed policy rate cuts February’s drop in consumer price inflation leaves the headline rate still well above target. But inflation is likely to fall further. In any case, with coronavirus risks mounting, the …
12th March 2020
The rising number of new coronavirus infections in Asia beyond China has largely been confined to Korea and Japan. But poor healthcare provision, the density of population and high levels of internal migration in the early stages of the monsoon season …
11th March 2020
Though the RBI’s takeover of Yes Bank is intended to reduce the direct threat posed by the failing bank to India’s financial stability, the measures that have been implemented could exacerbate systemic weakness in the banking system. This adds to the …
9th March 2020
Concerns over coronavirus are growing The rapid spread of the coronavirus looks increasingly likely to hamper domestic demand. Admittedly, at the time of writing the number of confirmed cases in India stands at 30, which is low in such a large population. …
6th March 2020
Headline consumer price inflation is likely to have dropped sharply in February, in large part due to a moderation in food inflation. This should further embolden the RBI to follow its global peers and cut interest rates over the coming weeks in response …
5th March 2020
The rapid global spread of the coronavirus has prompted us to lower our 2020 GDP growth forecast for India to 5.3%, from 5.7% previously. And there is now a high chance that the RBI follows the lead of other central banks by cutting interest rates in …
4th March 2020
In light of the accelerating spread of the coronavirus – and the economic disruption that is likely to follow – we are pulling down our GDP growth forecasts for Q1 and Q2 of this year. Growth is likely to rebound over the second half of the year, but most …
2nd March 2020
Revisions to India’s GDP data suggest that the recent slowdown started earlier, and problems in the shadow banking sector have had a more acute impact on the economy, than previously thought. But arguably the most worrying aspect of the new data is that …
Local manufacturing relatively unscathed from coronavirus outbreak The drop in the manufacturing PMI in February was expected given its previous surge to an eight-year high in January. But the reading is still consistent with decent growth in …
Broad data revisions suggest economy weak for longer India’s economy slowed again in the fourth quarter of last year, confounding hopes for a small turnaround. But the bigger story in today’s data release is the substantial revision to the GDP data for …
28th February 2020
Gold losing its shine (in India at least) India is one of the world’s largest importers of gold. The recent surge in prices of the precious metal – driven by safe-haven flows amid concerns over the impact of the coronavirus – might therefore be regarded …
Temporary disruption from the outbreak of the coronavirus should have limited macroeconomic impact on Indian industry. After all, India has a negligible supply-chain exposure to China (see Chart 1), where factory shutdowns are now having knock-on effects …
24th February 2020
Low expectations for Trump visit Progress on trade negotiations (as well as the opening of the world’s largest cricket stadium in Ahmedabad) will be high on the agenda during US President Donald Trump’s visit to India next week. There are suggestions that …
21st February 2020
The Supreme Court’s ruling that Vodafone’s joint venture in India must pay up to US$7bn in retrospective levies and penalties has grabbed headlines over the past few days. In this Update , we answer three key questions about the current situation and its …
20th February 2020
A slump in investment has been the key factor behind the sharp economic slowdown over the past year. A spectacular rebound is not on the cards but investment should recover gradually over the coming quarters due to a combination of fiscal and monetary …
18th February 2020
India’s merchandise trade deficit widened to a seven-month high in January, but we think that a low level of commodity imports will help to prevent the external shortfall from ballooning to unsustainable levels over the coming months. India’s monthly …
17th February 2020
Underlying price pressures are building The RBI doesn’t put much weight on the wholesale price measure of inflation, but the pick-up in core WPI inflation supports our view that the room for further monetary easing has diminished. Headline WPI inflation …
14th February 2020
BJP policy shift unlikely after Delhi loss The Election Commission confirmed this week that the local Aam Aadmi Party (AAP) stormed to victory in the Delhi Union Territory election, winning almost 90% of the available seats. (See Chart 1.) Prime Minister …
Rise in core inflation likely to continue Inflation rose faster than most expected in January due to a jump in core inflation. With an economic recovery around the corner, underlying price pressures should strengthen further over the coming quarters. That …
12th February 2020
Headline consumer price inflation is likely to have edged up in January, in large part due to a continued increase in food inflation. Further ahead, food inflation is likely to ease, but we expect core inflation to rise over the coming quarters as the …
7th February 2020
Finance ministry steps up These have been a busy few days for India’s policymakers. The finance ministry on Saturday confirmed in the Union Budget that it had changed tack and was aiming for much looser fiscal policy than it had been. (See here .) That …
While keeping rates on hold today, the RBI has kept the door open for further policy loosening over the coming months. But we doubt this will materialise, and expect the central bank to shift to tightening mode before the end of the year . All six member …
6th February 2020
The government’s hopes of hitting the record asset sales target in the budget for FY20/21 hinge on the smooth sale of large stakes in one of India’s worst-performing banks and a politically-important insurer. Neither is likely. The government may choose …
5th February 2020
Manufacturing PMI has probably peaked India’s manufacturing PMI surged in January to an eight-year high and defied the trend across the rest of Asia. Though the reading may fall back as fears over the coronavirus dents sentiment, the big picture is that …
3rd February 2020
The finance ministry set aside notions of near term fiscal consolidation by announcing additional stimulus in the FY20/21 union budget. That should help to support economic growth over the coming quarters, albeit at the cost of putting upward pressure on …
Sale of Air India a prop to the budget Ahead of tomorrow’s Union Budget, the government this week invited bids from potential investors in Air India. (Clients can read a preview of the Union Budget here .) Its sale would provide some much-needed revenues …
31st January 2020
RBI set to keep rates on hold next week as amid food inflation surge Analyst consensus expects resumption of easing cycle later this year In stark contrast, we expect modest hikes towards the end of 2020 Policy rates look set to be kept on hold at the …
29th January 2020
FDI inflows to pick up despite risks UNCTAD reported this week that foreign direct investment (FDI) inflows to India rose to US$49bn (1.7% of GDP) in 2019 from US$42bn (1.5% of GDP) in 2018. This is a welcome development. FDI inflows are a more stable …
24th January 2020
A wave of anti-government protests and a weak economy have increased the likelihood of the finance ministry delivering additional fiscal stimulus in the FY20/21 union budget on Saturday 1 st February. That would provide a small boost to growth over the …
22nd January 2020
2019 was truly an annus horribilis for India’s economy but there are green shoots of a recovery in the data from the very end of the year. Industrial production growth jumped in November. (See Chart 1.) Meanwhile, growth in new passenger vehicle sales is …
20th January 2020
Tentative signs of a recovery Local media has been awash this week with headlines about “stagflation” – a disquieting mix of stagnant or slowing economic growth and rising inflation. On the face of it, these concerns are justified in India today. …
17th January 2020
The narrowing in India’s goods trade deficit in December is likely to reverse over the coming months. But we think that a low level of commodity imports will help to prevent the external shortfall from ballooning to unsustainable levels. India’s monthly …
16th January 2020
Headline WPI jumps to highest in seven months The RBI doesn’t put much weight on the wholesale price measure of inflation, but the fact that it accelerated to a seven-month high in December nevertheless supports our view that the rate-cutting cycle is now …
14th January 2020
Surge in headline inflation to five-year high brings easing cycle to an end The jump in headline CPI inflation to its highest since 2014 almost guarantees that the RBI will leave policy rates on hold at its next meeting in early February. And with core …
13th January 2020
Industrial downturn has probably run its course The sharper-than-expected turnaround in industrial production growth in November is a breath of fresh air for India’s economy and supports our view that the economic slowdown has probably bottomed out. We …
10th January 2020
Recent developments raise odds of fiscal loosening Developments this week have raised the likelihood of Finance Minister Nirmala Sitharaman announcing more fiscal stimulus in next month’s union budget for FY20/21. First, the protests initially triggered …
Overview – After a year to forget in 2019, a combination of policy loosening and more effective measures to deal with the malaise in the shadow banking sector will push economic growth in India back up to a healthier pace in 2020. And with core inflation …
9th January 2020
Another surge in headline CPI inflation in December – most likely to a five-year high – would almost certainly bring an end to the RBI’s easing cycle. And a rise in core inflation over the coming quarters should prompt the central bank to switch to …
The direct economic impact of the protests that began in opposition to the citizenship amendment bill is likely to be small. However, the protests have increased the chances of a larger fiscal stimulus in next month’s union budget, which would be positive …
6th January 2020
Surge in oil prices not yet a concern Global oil prices have surged today following news of a US airstrike that killed a top Iranian military leader. A further sharp increase could be economically-destabilising for India. After all, it is the world’s …
3rd January 2020
Jump in manufacturing PMI reduces chance of further rate cuts The jump in India’s manufacturing PMI in December suggests that the manufacturing sector has recovered from its weakness last year and supports our view that the recent economic slowdown has …
2nd January 2020
Vegetable price surge will keep RBI on sidelines RBI Governor Shaktikanta Das reiterated in a conference this week that, while the MPC unexpectedly kept rates on hold earlier this month, that didn’t necessarily signal the end of the loosening cycle. Mr …
20th December 2019
The citizen amendment bill – which aims to fast-track citizenship for non-Muslims from neighbouring Muslim-majority countries – has dominated the news over the past couple of weeks. This isn’t primarily an economic or financial issue, but there are …
18th December 2019
After a dreadful 2019, a combination of policy loosening and more decisive measures to deal with problems in the shadow banking sector will push economic growth in India back up to a healthier pace in 2020. And with core inflation set to rise, we think …
17th December 2019
Headline WPI inflation rebounds Headline wholesale price inflation rose for the first time in eight months in November. While not the preferred measure of inflation for India’s policymakers, this adds to the impression that the inflation backdrop is …
16th December 2019