Status quo on the policy rate in the upcoming monetary policy review
Real Economy: Growth in IIP is expected to have strengthened in Oct 2018 as higher production levels given the festival season,election-related spending and infrastructure activity might have kept the output levels high. Nonetheless, higher interest rates and the concerns related to the NBFC segment might lead to cautious investment. D&B expects Index of Industrial Production (IIP) to have grown by 5.0%-5.5% during Oct-18.
Price Scenario: The moderation in oil prices will provide support to the falling headline inflation. The robust agriculture production and softening of prices of vegetables and fruits will also help in keeping the food inflation under check. The impact of increase in MSPs has not been reflected in the inflation for food and the government’s new procurement policy will support prices of agriculture produce going ahead.D&B expects the CPI inflation to be in the range of 2.8-3.0%and WPI inflation to be in the range of 4.8%-5.0%during Nov-18, respectively similar to the levels in the previous month.
Money & Finance: The return of foreign investors in the debt market, fall in the prices of global crude oil and the open market purchases of the bond by the RBI is likely to soften the pressure on yields in the bond market. Further, policy rates will remain unchanged and elevated.D&B expects 15-91-day T-Bill yield to average at around 6.8%-6.9%and 10-year G-sec yield at around 7.9%-8.1%during Nov-18.
External Sector: Rupee is expected to appreciate led by fall in the global crude oil prices as supply concerns ease. The liquidity enhancing measures by the RBI and others and the resumption in FII inflows would support the value of rupee. D&B expects the rupee to appreciate to around 73.6073.2 per US$ during Nov-18.