Wednesday December 07 2016
India Keeps Monetary Policy Unchanged at 6.25%
RBI l Rida Husna | rida@tradingeconomics.com

The Reserve Bank of India unexpectedly left its benchmark repo rate unchanged at a six-year low of 6.25 percent during the meeting held on December 7th despite wide expectations of a rate cut, following a severe cash crisis.

The central bank also hold its reverse repo rate steady at 5.75 percent and the marginal standing facility and the bank rate at 6.75 percent.

Excerpts from the statement by Governor Urjit Patel:

Liquidity conditions have undergone large shifts in Q3 so far. Surplus conditions in October and early November were overwhelmed by the impact of the withdrawal of SBNs from November 9. Currency in circulation plunged by `7.4 trillion up to December 2; consequently, net of replacements, deposits surged into the  banking system, leading to a massive increase in its excess reserves. The Reserve Bank scaled up its liquidity operations through variable rate reverse repo auctions of a wide range of tenors from overnight to 91 days, absorbing liquidity (net) of `5.2 trillion. The Reserve Bank allowed oil bonds issued by the Government as eligible securities under the LAF. From the fortnight beginning November 26, an incremental CRR of 100 per cent was applied on the increase in net demand and time liabilities (NDTL) between September 16, 2016 and November 11, 2016 as a temporary measure to drain excess liquidity from the system. From November 28, liquidity absorption fell back and the Reserve Bank undertook variable rate repo auctions of `3.3 trillion on November 28. As expected, money market conditions tightened thereafter and the weighted average call rate (WACR) traded near the upper bound of the LAF corridor on that day before dropping back to the policy repo rate on November 30. All other rates in the system firmed up in sympathy, with term premia getting restored gradually. Through this episode, active liquidity management prevented the WACR from falling even to the fixed rate reverse repo rate, the lower bound of the LAF corridor. Liquidity management was bolstered by an increase in the limit on securities under the market stabilisation scheme (MSS) from `0.2 trillion to `6 trillion on November 29. There have been two issuances of cash management bills under MSS for `1.4 trillion by December 6, 2016.

In the external sector, India’s merchandise exports rebounded in September and October. The return to positive territory was supported by a pick-up in both POL and non-POL exports. 

CPI inflation excluding food and fuel has been resistant to downward impulses and could set a floor to headline inflation. With the OPEC’s agreement to cut production, crude prices may firm up in the coming months. Global developments, especially as financial markets factor in the futur estance of US monetary and fiscal policy, could impart volatility to the exchange rate thereby feeding into inflation.

While supply disruptions in the backwash of currency replacement may drag down growth this year, it is important to analyse more information and experience before judging their full effects and their persistence – short-term developments that influence the outlook disproportionately warrant caution with respect to setting the monetary policy stance. If the impact is transient as widely expected, growth should rebound strongly. Turning to inflation, food prices other than vegetables are exhibiting sustained firmness and a pick-up in momentum. Given these indicators of underlying inflation, it is appropriate to look through the transitory but unclear effects of the withdrawal of SBNs while setting the monetary policy stance. On balance, therefore, it is prudent to wait and watch how these factors play out and impinge upon the outlook. Accordingly, the policy repo rate has been kept on hold in this review, while retaining an accommodative policy stance. 






Wednesday November 30 2016
Indian Economy Expands 7.3% YoY In Q3
Yekaterina Guchshina | yekaterina@tradingeconomics.com

India's gross domestic product advanced 7.3 percent year-on-year in the third quarter of 2016, following 7.1 percent expansion in the previous period and missing market expectations of 7.5 percent growth. Private consumption expanded at a faster pace while government spending slowed down and fixed investment dropped further.

Private consumption growth accelerated to 7.6 percent from 6.7 percent in the previous quarter while government spending rose at a slower 15.2 percent (+18.8 percent in Q2). Gross fixed capital formation shrank at a faster 5.6 percent, following a 3.1 percent contraction in the previous period.

Exports increased 0.3 percent, following a 3.2 percent growth in the second quarter; while imports declined 9 percent after falling 5.8 percent in the precedent period.

On the production side, the gross value added for public administration, defence and other services expanded the most (+12.5 percent vs +12.3 percent in Q2), followed by: financial, insurance, real estate and professional services (+8.2 percent vs +9.4 percent); manufacturing (+7.1 percent vs +9.1 percent); trade, hotel, transport, communication and services related to broadcasting (+7.1 percent vs +8.1 percent); electricity, gas, water supply and other utility services (+3.5 percent vs +9.4 percent); agriculture, forestry and fishery (+3.3 percent vs +1.8 percent) and construction (+3.5 percent vs +1.5 percent). By contrast, mining and quarrying contracted 1.5 percent (-0.4 percent in Q2).




Tuesday November 15 2016
India Inflation Rate Falls to 14-Month Low of 4.2%
Joana Taborda | joana.taborda@tradingeconomics.com

Consumer prices in India increased 4.2 percent year-on-year in October of 2016, easing from an upwardly revised 4.39 percent rise in September, reaching a new low since August last year. Figures came in line with market expectations as food inflation eased for the third straight month to 3.32 percent.

Year-on-year, cost of food and beverages rose 3.17 percent (+4.12 percent in September), provisional estimates showed. The food index alone increased by 3.32 percent compared to 3.96 percent in the previous month. Upward pressure came from sugar (+23.62 percent from +25.77 percent in September), pulses (+4.11 percent from +14.33 percent) and fruits (+4.42 percent from +6.07 percent); while cost of vegetables continued to fall (-5.74 percent from -7.21 percent).

Cost of clothing and footwear increased 5.24 percent year-on-year (from +5.19 percent in September); fuel and light rose 2.81 percent (from +3.07 percent); and housing prices went up 5.15 percent (from +5.18 percent).

The corresponding provisional inflation rates for rural and urban areas are 4.78 percent and 3.54 percent (5.04 percent and 3.64 percent respectively in September).

A year ago, the inflation rate was higher at 5 percent.

On a monthly basis, consumer prices rose 0.38 percent.




Tuesday November 15 2016
India WPI Rises the Least in 4 Months
Office of the Economic Adviser l Rida Husna | rida@tradingeconomics.com

Indian wholesale prices rose 3.39 percent year-on-year in October of 2016, following a 3.57 percent gain in September while markets expected a 3.75 percent rise. It was the seventh straight month of increase but the lowest figure since June, as a slowdown in prices of food offset a faster rise in cost of manufactured products and petrol.

In October, food prices went up 4.34 percent from a year earlier, following a 5.75 percent  rise in the preceding month. Among food prices, potatoes recorded the highest rise (+60.58 percent), followed by pulses (+21.80 percent), fruits (+6.45 percent), wheat (+6.30 percent); egg, meat & fish (6.20 percent), cereals (+6.13 percent), rice (+4.57 percent) and milk (+4.19 percent). In contrast, prices declined for: onion (-65.97 percent) and vegetables (-9.97 percent).
Cost of manufactured products increased by 2.67 percent, compared to a 2.48 percent rise in the previous month.

Petrol prices went up 3.57 percent year-on-year, following a 1.25 percent gain in September. Cost of diesel also increased by 19.32 percent, as compared to a 19.08 percent rise in a month earlier.

On a monthly basis, wholesale prices increased 0.1 percent, following a 0.2 percent drop in a month earlier.




Friday October 14 2016
India WPI Rises Less than Estimated in September
Office of the Economic Adviser l Rida Husna | rida@tradingeconomics.com

Indian wholesale prices rose 3.57 percent year-on-year in September of 2016, following a 3.74 percent gain in August. It was the sixth straight month of increase and the lowest figure since June while markets expected a 3.90 percent rise. A slowdown in prices of food offset an increase in cost of manufactured products and petrol.

In September, food prices increased by 5.75 percent from a year earlier, following a 8.23 percent rise in the preceding month. Among food prices, potatoes recorded the highest rise (+73.31 percent), followed by pulses (+23.99 percent), fruits (+14.10 percent); egg, meat & fish (7.44 percent), wheat (+7.01 percent), cereals (+6.84 percent), rice (+4.66 percent) and milk (+3.71 percent). In contrast, prices declined for: onion (-70.52 percent) and vegetables (-10.91 percent).

Cost of manufactured products increased by 2.48 percent, compared to a 2.42 percent rise in the previous month.

Petrol prices went up 1.25 percent year-on-year, following a 8.65 percent decline in August. Cost of diesel also increased by 19.08 percent, as compared to a 12.15 percent rise in a month earlier.

On a monthly basis, wholesale prices decreased by 0.2 percent, following a 0.4 percent fall in a month earlier.


Thursday October 13 2016
India Annual Inflation Rate Slows to 13-Month Low
Joana Ferreira | joana.ferreira@tradingeconomics.com

India's consumer prices increased by 4.31 percent year-on-year in September 2016, easing from a 5.05 percent growth in the previous month and missing market expectations of a 4.8 percent gain. It was the lowest inflation rate since August last year, as food cost rose at a slower pace.

Year-on-year, cost of food and beverages rose 4.12 percent (+5.83 percent in August), provisional estimates showed. The food index alone increased by 3.88 percent compared to 5.91 percent in the previous month. Upward pressure came from sugar (+25.77 percent from +24.75 percent in August), followed by pulses (+14.33 percent from +22.01 percent) and fruits (+6.07 percent from +4.46 percent); while cost of vegetables fell sharply (-7.21 percent from +1.02 percent).

Cost of clothing and footwear increased 5.19 percent year-on-year (from +5.21 percent in August); fuel and light rose 3.07 percent (from +2.49 percent); and housing prices went up 5.18 percent (from +5.29 percent).

The corresponding provisional inflation rates for rural and urban areas are 4.96 percent and 3.64 percent (5.87 percent and 4.22 percent respectively in August).

A year ago, the inflation rate was higher at 4.41 percent.

On a monthly basis, consumer prices fell 0.23 percent.


Tuesday October 04 2016
India Cuts Repo Rate to a 6-Year Low of 6.25%
RBI | Joana Ferreira | joana.ferreira@tradingeconomics.com

The Reserve Bank of India lowered its repurchase rate by a surprise 25bps to 6.25 percent on October 4th, 2016, saying the stance of monetary policy remains accommodative and the decision will help to bring inflation rate back to central bank's 4 percent target in the medium-term while supporting growth. India’s consumer prices index rose 5 percent year-on-year in August, easing from its 6 percent increase in July. The repo policy rate is now at its lowest since November 2010.

The central bank also cut its reverse repo rate to 5.75 percent while it kept its cash reserve ratio at 4 percent.

Excerpts from the final review by Governor Urjit Patel:

The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 per cent, while supporting growth. 

The Committee expects that the strong improvement in sowing, along with supply management measures, will improve the food inflation outlook. It notes that the sharp drop in inflation reflects a downward shift in the momentum of food inflation – which holds the key to future inflation outcomes – rather than merely the statistical effects of a favourable base effect. The Government has announced several measures  to cool food inflation pressures,  especially with regard to pulses. These measures should help in moderating the momentum of  food  inflation  in  the  months  ahead.  This  has  opened  up  space  for  policy  action,  as indicated in  the  third  bi-monthly  monetary  policy  statement.  The  easy  liquidity  conditions  engendered  by  the  Reserve  Bank’s operations  should  also enable the  smooth  transmission  of the policy action through various market segments. Furthermore, banks should find added impetus  for  better  transmission  by the recent  downward  adjustment  in  small  savings  rates.  The Committee took note of potential cost push pressures that may emerge, including the 7thpay commission award on house rent allowances, and the increase in minimum wages with possible spillovers through minimum support prices. The fuller play of these factors will need vigilance  to  prevent  a  generalised  cost  spiral  from  taking  root.  On  balance,  the  Committee  envisages a trajectory taking headline CPI inflation towards a central tendency of 5 per cent by  March  2017,  with  risks  tilted  to  the  upside  albeitlower  than  in  the  second  and  third  bi-monthly monetary policy statements of June and August respectively.

The momentum of growth is expected to quicken with a normal monsoon raising agricultural  growth  and  rural  demand,  as  well as  by  the  stimulus  to the urban  consumption  spending from the pay commission’s award. The accommodative stance of monetary policy and comfortable liquidity conditions should support a revival of credit to the productive sectors. The continuing sluggishness in world trade and smaller terms of trade gains than in the past point, however, to further slackening of external demand going forward. Accordingly, the projection of growth of real gross value added (GVA) for 2016-17 is retained at 7.6 per cent, with risks evenly balanced around it.

Six members voted in favour of the monetary policy decision. 


Wednesday September 14 2016
India WPI Rises Less Than Expected in August
Office of the Economic Adviserl Rida Husna | rida@tradingeconomics.com

India wholesale prices rose 3.74 percent year-on-year in August of 2016, following a 3.55 percent gain in July while markets expected a 4.01 percent rise. It was the fifth straight month of increase and the highest figure since August 2014. While cost of manufactured products rose at a faster pace, prices of food slowed and cost of petrol fell less than in the preceding month.

In August, food prices increased by 8.23 percent from a year earlier, following a 11.82 percent rise in the preceding month. Among food prices, potatoes recorded the highest increase (+66.72 percent), followed by pulses (+34.55 percent), fruits (+13.91 percent); egg, meat & fish (+8.75 percent), cereals (+7.23 percent), wheat (+7.27 percent), rice (+4.76 percent) and vegetables (+0.17 percent). In contrast, prices declined for: onion (-64.19 percent).

Cost of manufactured products increased by 2.42 percent, compared to a 1.82 percent rise in the previous month.

Petrol prices dropped by 8.65 percent year-on-year, following a 10.30 percent decline in July. In contrast, cost of diesel increased by 12.15 percent, as compared to a 6.57 percent rise in a month earlier.

On a monthly basis, wholesale prices decreased by 0.4 percent, following a 1.0 percent increase in a month earlier.


Monday September 12 2016
India Inflation Rate Slows More than Expected
Joana Taborda | joana.taborda@tradingeconomics.com

Consumer prices in India increased 5.05 percent year-on-year in August of 2016, easing from a 6.07 percent rise in July and below market expectations of 5.5 percent. It is the lowest inflation rate in five months due to smaller rises in food prices.

Year-on-year, cost of food and beverages rose at a slower 5.83 percent (7.96 percent in July), provisional estimates showed. The food alone index also eased to 5.91 percent from 8.35 percent. Cost rose at a slower pace for pulses (22.01 percent compared to 27.53 percent in July) and vegetables (1.02 percent compared to 14.06 percent) but increased more for sugar (24.75 percent compared to 21.91 percent) and fruits (4.46 percent compared to 3.53 percent).

Cost of clothing and footwear went up 5.21 percent (5.23 percent in July); fuel and light rose 2.49 percent (2.75 percent) and housing prices increased 5.29 percent (5.42 percent).

The corresponding provisional inflation rates for rural and urban areas are 5.87 percent and 4.22 percent (6.66 percent and 5.39 percent respectively in July).

A year ago, the inflation rate was lower at 3.74 percent.

On a monthly basis, consumer prices were unchanged.


Wednesday August 31 2016
India GDP Growth Slows to 7.1% YoY in Q2
Joana Ferreira | joana.ferreira@tradingeconomics.com

India's gross domestic product advanced 7.1 percent year-on-year in the second quarter of 2016, slowing from a 7.9 percent expansion in the previous period and missing market expectations of 7.6 percent growth. It was the lowest reading since the fourth quarter of 2014, as private consumption expanded at a slower pace while fixed investment dropped further.

Private consumption growth eased to 6.7 percent from 8.3 percent in the previous quarter while government spending jumped 18.8 percent, accelerating from a 2.9 percent growth in Q1. Gross fixed capital formation shrank at a faster 3.1 percent, following a 1.9 percent contraction in the previous period.

Exports increased 3.2 percent, following a 1.9 percent drop in the first quarter; while imports declined 5.8 percent after falling 1.6 percent in the precedent period.

On the production side, the gross value added for public administration, defence and other services expanded the most (+12.3 percent), followed by: financial, insurance, real estate and professional services (+9.4 percent); electricity, gas, water supply and other utility services (+9.4 percent); manufacturing (+9.1 percent); trade, hotel, transport, communication and services related to broadcasting (+8.1 percent); agriculture, forestry and fishery (+1.8 percent) and construction (+1.5 percent). By contrast, mining and quarrying contracted 0.4 percent.