India: Inflation hits RBI’s forecast but growth remains slow
The return of the Indian rupee to an appreciation trend after a selloff from September through November reduces pressure on the RBI to raise interest rates
| 5.1% |
ING forecast for December inflation |
Inflation hits RBI's forecast
India’s consumer price inflation data for December and industrial production data for November are due today. CPI inflation is creeping higher and with a low base effect in the food CPI component, it is poised to exceed the Reserve Bank of India’s (RBI) 4.3-4.7% forecast for the second half of the fiscal year 2017-18 (ends in March 2018). Our forecast for December is 5.1% year-on-year, in line with consensus.
Near-term inflation outlook
The likelihood of inflation remaining within the RBI’s forecast range depends on seasonal cooling of food prices in the Rabi (Spring) crop harvest months of January to March. However, the upside risk stems from rising global oil prices working their way through domestic fuel prices, which is likely to keep CPI inflation sticky downward.
| 30% |
Export growth in November |
Exports support consensus of faster IP growth
However, the industrial production data is expected to reinforce slow growth. The consensus forecast of acceleration in IP growth to 4.4% YoY in November from 2.2% in the previous month rests on strong exports. A 30% YoY surge in exports in November was the fastest in six years. However, it was merely the result of a low base on both monthly and yearly basis, imparting a downside risk to consensus on IP growth.
Policy implications
India’s GDP growth may be gaining some traction, but with elevated inflation the RBI has little scope to move from the neutral policy stance in the near-term. The return of the Indian rupee to an appreciation trend after a selloff from September through November reduces pressure on the RBI to raise interest rates. We reiterate our forecast of no change to the RBI policy in 2018.
Download
Download article
12 January 2018
Good MornING Asia: 12 January 2018 This bundle contains {bundle_entries}{/bundle_entries} articles"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).