Concerns over pace of recovery have deepened
Real Economy: With ‘Unlock 4.0’ guidelines in place from September and Unlock 5.0 from October, the pace of contraction in the Index of Industrial Production (IIP) is expected to reduce further with the relaxation of COVID-19 restrictions. The index is expected to post negative growth during September and rebound to the positive territory from the month of October. The pent-up and festival-related demand would provide traction across industrial activity. However, in the meantime, Dun & Bradstreet expects IIP to have fallen by (-) 5% - (-) 4% during September 2020.
Price Scenario: Inflationary pressures would continue as supply disruption prevails. The uptick in inflation of food prices in the month of September would continue to prevail in the month of October as well, led by festival-induced demand and disruption caused by heavy rains in some parts of the country. Inflation for the services sector such as transport and communication, household goods and services and personal care continues to remain high and are a cause of concern. Dun & Bradstreet expects the Consumer Price Inflation (CPI) to be in the range of 6.8% - 7.0% and Wholesale Price Inflation (WPI) to be in the range of 1.8% - 2.0% during October 2020.
Money & Finance: The Reserve Bank of India’s (RBI) liquidity measures to keep orderly market conditions and low yields which will support the financial markets that rely on the G-Sec yield curve as a benchmark for pricing financial instruments, have eased the concerns of the bond market. The RBI has also addressed the wider concern regarding the high government borrowing, which will put at bay the apprehensions amongst the international rating agencies in their evaluation of India’s growth prospects. Dun & Bradstreet expects 15-91-day Treasury-Bill yield to average at around 3.3%-3.4% and 10-year G-Sec yield at around 6.04%-6.08% during October 2020.
External Sector: The rupee is expected to hold its position and remain strong backed by persistent dollar inflows, both FII and FDI, weak dollar, better than expected macroeconomic data and a healthy current account surplus. Dun & Bradstreet expects the rupee to remain at around 73.6 per US$ during October 2020