Dun & Bradstreet expects the RBI to keep the policy repo rate unchanged amidst the uncertainty posed the by the sharp rise in COVID-19 cases
Real Economy: Dun & Bradstreet expects growth in industrial production to remain low over the near to medium term. Broad-based recovery of the manufacturing sector has not taken place. Demand is yet to normalize and amidst low capacity utilization, private sector investment is likely to gain traction only in the second half of the next fiscal year. The recent surge in the COVID-19 cases and the restrictions imposed by several states will impose further uncertainty and hurdles to the pace of revival of industrial production. Dun & Bradstreet expects the Index of Industrial Production (IIP) to have grown by 2.0% - 2.5% during February 2021.
Price Scenario: Dun & Bradstreet expects both headline and Wholesale Price Inflation (WPI) to increase and remain elevated in the near term. The rout in global crude oil, commodity and food prices are expected to feed into the inflation dynamics of India through various channels. The Reserve Bank of India (RBI) thus, has a difficult task of managing the inflation pressures while preventing a rise in borrowing cost to the government. Despite the upward inflationary pressures, Dun & Bradstreet expects the RBI to keep the policy rate unchanged in the April 2021 Monetary Policy meeting. Dun & Bradstreet expects Consumer Price Inflation (CPI) to be in the range of 5.7% - 5.9% and Wholesale Price Inflation (WPI) to be in the range of 5.75% - 6.0% during March 2021.
Money & Finance: Dun & Bradstreet expects short term yields in March 2021 to remain largely unchanged from the February 2021 level and long-term yields to increase in the month of March 2021. The RBI’s January 2021 announcement to restore normal liquidity management operations will act as a signal, prompting the market to adjust and align the low short-term rates towards the repo rate. The long-term bond yields are expected to be driven higher by the rise in US 10-year treasury yields, high government borrowing, outflow of Foreign Institutional Investors (FIIs) from the debt markets and elevated inflationary pressures. Dun & Bradstreet expects the 15-91day Treasury Bills yield to average at around 3.1%-3.2% and 10-year G-Sec yield at around 6.2%-6.3% during March 2021.
External Sector: The year-end importers’ demand for dollar and external debt repayments will exert pressure on the rupee towards end-March 2021. The rupee will also face depreciating pressures from rise in oil prices, outflow of FIIs from the debt market and the uncertainty imposed by the rising COVID-19 cases. Dun & Bradstreet expects the rupee to remain at around 72.8-73 per US$ during March 2021.