Demand expected to materialize once economic activity gathers momentum
Real Economy: The pace of contraction in the Index of Industrial Production (IIP) is expected to have further reduced in the month of July as the lockdown restrictions began to lift with more activities were being allowed. An increase in e-commerce activity indicates that manufacturers have increased their production activity, although the manufacturing index under IIP is expected to post a negative growth over the next two months at least, i.e. till September. The festival-related demand might pose some buoyancy to the industrial activity from Oct 2020, although, the magnitude will remain lower, as compared to last year. Dun & Bradstreet expects IIP to have fallen by (-) 10.5% - (-) 11.5% during July 2020.
Price Scenario: Inflationary pressures are likely to prevail in the economy. Even as retail food price pressures have abated, supply side food inflation indicated by Wholesale Price Index (WPI) have inched up. The increase in the fuel and services inflation is likely to keep inflation elevated. With Consumer Price Index (CPI) inflation inching close to 7.0%, the RBI is not likely to cut the policy rate in the October monetary policy meet. Dun & Bradstreet expects the CPI inflation to have increased to 6.7% - 7.1% and WPI inflation to be in the range of (-) 0.45% - (-) 0.5% during Aug 2020.
Money & Finance: High inflation, the expected postponement of any rate cut and Foreign Institutional Investment (FII) redemption pressures in the debt market are expected to keep yields elevated in the bond market. Dun & Bradstreet expects 15-91-day Treasury-Bill yield to average at around 3.2%-3.4% and 10-year Gr-Sec yield at around 5.8%-5.85% during Aug 2020.
External Sector: Concerns over rising COVID-19 cases and a rise in trade deficit will continue to place downward pressure on the rupee. Higher government borrowings and high inflation are expected to keep investors wary of investing in the debt market, causing the rupee to depreciate in August, although not as significantly as July. Dun & Bradstreet expects the rupee to remain at around 75.0-75.10 per US$ during Aug-2020.