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D&B Economy Observer: Economy forecast for the month of January 2021

Lack of Sustainability in Demand to Pose Risks to Growth: Dun & Bradstreet Report

Real Economy: Index of Industrial Production (IIP) growth remained weak during December as manufacturers remained cautious over the broad-based recovery in demand post the festival season and weak external demand. High base of the previous year had also kept the growth muted. Dun & Bradstreet expects the IIP to have grown by (-) 1.0% - (-) 0.5% during December 2020.

Price Scenario: Due to the easing of supply chain disruptions, seasonal production, fall in price level of animal protein commodities because of the spread of bird flu, and high base of the previous year, we expect headline inflation to moderate during January 2021. However, broad-based inflationary pressures from the recent increase in global prices of energy and metals continue to persist. Furthermore, core inflation remains sticky, which might reverse the current fall in the inflation rate. Dun & Bradstreet expects the Consumer Price Inflation (CPI) to be in the range of 4.5% - 4.55% and Wholesale Price Inflation (WPI) to be in the range of 1.28% - 1.32% during January 2021.

Money & Finance: Dun & Bradstreet expects bond yields to remain elevated in the month of January 2021. Sticky core inflation, high borrowing needs of the government and the indication given by the Reserve bank of India (RBI) to withdraw the liquidity from the market is expected to keep yields elevated during the month. Dun & Bradstreet expects 15-91day Treasury Bill yield to average at around 3.07%-3.09% and 10-year G-Sec yield at around 5.89%-5.91% during January 2021.

External Sector: Dun & Bradstreet expects rupee to continue to appreciate during the month of January 2021. A current account surplus, dollar inflows, signs of an economic recovery and a weakness in the US dollar is expected to lend support to rupee. Dun & Bradstreet expects the rupee to remain at around 73.1-73.3 per US$ during January 2021.

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