D&B Economy Observer: Economy forecast for the month of March

 

Proactive measures need to be effectively followed through to generate growth impulses

Real Economy:Industrial production is expected to remain subdued over moderate demand and uncertainty around the outcome of upcoming general election. Global trade tensions and subdued trade growth outlook is also expected to dampen the industrial production through trade and investment channels. D&B expects Index of Industrial Production (IIP) to have moderated by 1.5%-2.0% during Jan-19.

Price Scenario: In the near term, we expect inflation to remain restrained led by the subdued fuel inflation and weak rural demand. However, the inflation rate is likely to edge up slightly higher in February given the base effect. Post the winter season which remained extended this time, prices of food articles which have remained low for quite some time are expected to reverse. The elevated inflation in some of the segments under services pose concerns. The election related spending, and expected lower Kharif crop output would also exert inflationary pressures. D&B expects the CPI inflation to be in the range of 2.2%-2.4% and WPI inflation to be in the range of 2.65% - 2.80% during Feb 19, respectively.

Money & Finance: Domestic liquidity pressures, widening of credit and deposit growth and FII outflows are likely to keep upward pressure on yields. On the other hand, Reserve Bank of India's (RBI) policy-stance change, the policy rate cut, falling inflation and low inflation expectations by households both in the near and long term are likely to keep yields depressed. As a result, bond yields are likely to remain range bound and largely unchanged from the previous month. D&B expects 15-91-day T-Bill yield to average at around 6.4% - 6.5% and 10-year G-sec yield at around 7.3%-7.4% during Feb-19.

External Sector: Rupee is likely to depreciate further over concerns over slowdown in global trade, FII outflow pressures, rising crude oil prices, and the political uncertainty. D&B expects the rupee to depreciate to around 71.2 per US$ during Feb-19.

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