Key Economic Forecast October 2016
Real Economy: IIP for the month of Nov 16 is expected to be in the
positive zone in Oct 16 largely owing to the base effect. Industrial production
in the country continues to be plagued by weak investment activity, decelerating
bank credit growth, weak external demand and lower capacity utilization rate. Besides
the dent in consumption demand owing to demonetisation is also expected to impact
production activity going forward. D&B expects IIP to have grown by 2.0%-3.0%
Price Scenario: While demonetisation is expected to pull inflation
down as cash constraint impacts the prices of commodities, the impact will the transitory.
Upside risks to inflation persists with increase in global commodity and crude oil
prices, strengthening of dollar, US fed rate hike and downward pressure on the rupee.
D&B expects the CPI inflation to be in the range of 3.4%-3.6% and
WPI inflation to be in the range of 3.2% - 3.4% during Dec-16, respectively.
Money & Finance: Yields across maturities during Dec 16 is expected
to be lower or at the same level as in the month of Nov16 owing to moderation in
inflation. Also, given rise in bank deposits, banks are parking their funds in government
bonds. However, the hawkish stance of both the RBI and the Fed would pull down the
bond prices although in the near term. D&B expects 15-91 day T-Bill yield
to average at around 5.9%-6.0% and 10-year G-sec yield at around 6.3%-6.6%
External Sector: Rupee is expected to remain under pressure in Dec
16. Uncertainty on impact of demonetisation, low productivity in parliament and
ambiguity over the implementation of the GST on target date, uncertainly around
global economy, OPEC decision to cut oil production along with strengthening of
dollar will continue to exert downward pressure on rupee. D&B expects the rupee
to trade in the range of around 67.70-67.90 per US$ during Dec-16.