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

Coronavirus outbreak could cause a dent to the recovery of the Indian economy

Real Economy: Subdued demand conditions along with high inflationary pressures and geopolitical issues are likely to keep Index of Industrial Production (IIP) subdued. Moreover, due to low tax collection, government expenditure is expected to remain subdued during the last quarter of FY20. Dun & Bradstreet expects IIP to remain subdued by 0.1% - 0.5% during Jan 2020.

Price Scenario: A sharp fall in global crude oil prices along with a fall in the global commodity prices of major commodities such as energy, base metals and fertilizers etc. is expected to exert downward pressure on inflation. Market prices of some of commodities such as vegetables and protein items have also reduced from the high levels witnessed during the previous few months. However, there are upward pressures on inflation due to uncertainty and disruption in the supply chain caused by the impact of the coronavirus outbreak. In view of the various measures taken by the RBI (Reserve Bank of India)] to ensure flow of credit to the productive sectors of the economy, we expect no change in the policy rate unless headline inflation falls below 4.0%. Dun & Bradstreet expects the CPI (Consumer Price Index) inflation to remain in the range of 7.5%-7.7% and WPI (Wholesale Price Index) inflation in the range of 0.1% - 0.5% during Feb 2020, respectively.

Money & Finance: Rupee bond sales by the state run bank, measures taken by the RBI to infuse liquidity in the system, and projected fiscal deficit in line with market expectations are expected to keep yields subdued across the curve. Dun & Bradstreet expects 15-91-day T-Bill yield to average at around 5.0%-5.1% and 10-year G-sec yield at around 6.7%-6.8% during Feb 2020.

External Sector: Near-term outlook for the Rupee remains bearish. Uncertainty over the coronavirus outbreak and its impact on trade and global growth, and low level of FII inflows are expected to keep the rupee weak. However, as the Rupee derives support from low crude oil prices we expect rupee to remain rangebound around the level witnessed in the previous month. Dun & Bradstreet expects the Rupee to remain at around 71.3-71.5 per US$ during Feb-2020.

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