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The banking crisis in the US and Europe unlikely to cause a domino effect in India

Mumbai, April 4th, 2023

Key economic forecast:

Real Economy: Dun & Bradstreet expects Index of Industrial Production (IIP) to grow robustly in February due to the base effect and to some extent because of the expected increase in the Government capex expenditure towards the close of the fiscal year to meet the budgeted target. According to available data, the government achieved 78% of its capex target for FY23 till January. Resilient demand conditions and easing of supply chain pressures is also expected to support industrial activity. Dun & Bradstreet expects the Index of Industrial Production to have grown by (9.0%) - (9.5%), partly due to base effect during February 2022.

Price Scenario: Resilient rural demand along with rising temperatures and other weather disruptions could keep food inflation higher. Even though energy prices have moderated, food inflation remains elevated and will provide upward pressure to inflation along with the depreciation of rupee. Miscellaneous or services inflation, especially in the rural areas, have bounced back and are likely to remain high. The stickiness in the core inflation is providing a resistance to retail inflation from easing considerably. Dun & Bradstreet expects Consumer Price Inflation (CPI) to be in the range of 5.6% - 5.8% and Wholesale Price Inflation (WPI) to be around 1.5% - 1.6%, respectively in March 2023.

Money & Finance: Bank collapses in the first half of March 2023 have led to fears of contagion risk across financial markets leading to a sharp turnaround of global capital markets, particularly debt markets. As markets are bracing for tighter financial conditions globally, India’s bond market is also likely to remain bearish in March. Tighter liquidity and rising credit demand will also put pressure on corporate bonds. Inflation and financial market uncertainties could thus force RBI to change its current stance. Dun & Bradstreet expects the 15-91-day Treasury Bills yield to remain at around 6.9% -7.0% and 10-year G-Sec yield to be 7.4% -7.5% for March 2023.

External Sector: Volatility in rupee has been easing since December 2022. However, rupee is on a depreciating mode. Rupee continued to depreciate in March as concerns regarding instability of banks worldwide triggered sharp selling pressure for currencies deemed risky. We expect rupee to trade on a negative note as deteriorating global risk sentiments may continue to place downside pressure on rupee. Capital outflows and comparatively soft interest rate hikes by the Central Bank and rise in dollar yields because of monetary tightening by the Federal Reserve will continue to pressurize the rupee. Dun & Bradstreet expects the rupee to depreciate to 82.2 - 82.4 per US$ during March 2023.

Dr. Arun Singh, Global Chief Economist, Dun & Bradstreet said, “India’s domestic demand remains resilient, supply chain pressures have eased, and external debt continues to be prudently managed. Capital expenditure budgeted at 3.3% of GDP or at Rs 10 tn in 2023-24, which is more than 11 times the amount expended in FY09, is expected to crowd-in private investment, strengthen job creation and demand, and raise India’s potential growth. The banking crisis in the US and Europe is unlikely to cause a domino effect, may restrict capital flows and cause the rupee to weaken. Nonetheless, the economy is supported by adequate forex reserves, current account deficit is expected to remain below 3% and fiscal deficit remains within control”.

Dun & Bradstreet’s Economy Observer Forecast



Latest Period

Previous period

IIP Growth

9.0% - 9.5% Feb-23

5.2% Jan-23

4.7% Dec-22

Inflation WPI

1.5% - 1.6% Mar-23

3.85% Feb-23

4.73% Jan-23

CPI (Combined)

5.5% - 5.7% Mar-23

6.44% Jan-23

6.52% Jan-23

Exchange Rate (INR/US$)

82.2 - 82.4 Mar-23

82.6 Feb-23

81.90 Jan-23

15-91 day's T-Bills

6.9% - 7.0% Mar-23

6.70% Feb-23

6.41% Jan-23

10 year G-Sec yield

7.4% - 7.5% Mar-23

7.34% Jan-23

7.39% Jan-23

Bank Credit

15.0%-15.5% Mar-23

15.2% Feb-23

14.9% Jan-23




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