RBI likely to maintain status quo

The Indian economy continues to traverse across a rocky road; GDP growth has dropped to a 17 quarters low of 4.4% during Q1 FY14,mining and manufacturing sectors continue to witness contraction,inflation has yet again beached the comfort zone,IIP growth remains subdued. In this context,during the much-awaited Monetary Policy Review meeting scheduled this week,the RBI is likely to keep its key policy rates unchanged owing to the sharp rise in WPI inflation in August (its highest level in 6 months),according to a Dun & Bradstreet India report.

Key Economic Forecast

Real Economy

Performance in industrial activity will remain a concern during the next few months due to lack of consumption demand,high interest rates,pessimistic investment scenario and increase in overall prices. IIP is expected to remain subdued barring the festive months where demand usually uplifts industrial production. Going ahead,IIP is expected to remain in the range of 1.0%-2.0% during August.

Price Scenario

Strong depreciation of rupee along with elevated global crude oil prices is likely to provide upward pressure to overall inflation in the near term. WPI inflation expected to remain in the range of 6.1%-6.3% during September.

Money & Finance

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Foreign fund outflows in the debt market and liquidity constraints due to liquidity tightening measures taken by the RBI are likely to keep the yields elevated in the gilts market. Credit growth is also likely to remain moderated as overall demand conditions remain subdued. 15-91 day T-Bill yield is likely to average at around 10.7%-10.9% and 10-year G-sec yield at around 8.9%-9.1% during September.

External Sector

While,measures taken by the RBI and the government in the recent past is likely to support rupee,the movement of rupee in the near term will depend on the policy direction from the US Federal Reserve and development in the Indian economic scenario. The rupee is expected to average at around 65.10-65.20 per US$ during September.

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