Strain on India's external balance sheet has increased
Real Economy: We expect IIP growth in Sep 2018 to remain at Aug 18 level as festive related demand keep industrial activity elevated. However,wider concerns on increase in interest rates and liquidity crunch in the banking & non-banking segment would continue to weigh on industrial production. D&B expects Index of Industrial Production (IIP) to have grown by 4.4%-4.6% during Sep-18.
Price Scenario: There has been no broad based surge in inflation despite upside inflationary pressures in the economy. Two factors,i.e. the base effect and second round impact of increase in oil prices over other commodities remain absent. It remains to be seen over the next few months,how the spatial distribution of rainfall,rupee depreciation and increase in oil prices impact inflation once the base effect wanes out. D&B expects the CPI inflation to be in the range of 3.5-3.7% and WPI inflation to be in the range of 4.9% - 5.1% during Oct-18,respectively
Money & Finance: Depreciating rupee,rising oil prices,foreign debt portfolio outflows amidst tightening of global liquidity,trade wars and concern of liquidity crunch in the NBFC segment is expected to keep yields elevated in the bond market. D&B expects 15-91-day T-Bill yield to average at around 7.1%-6.9% and 10-year G-sec yield at around 8.0%-8.1% during Oct-18.
External Sector: Rupee to continue to witness depreciation pressures as tightening of global liquidity will lead to portfolio outflows from emerging countries including India. Higher current account deficit,increase in the Federal fund rate along with geopolitical risks would keep rupee under pressure. D&B expects the rupee to depreciate to around 73.6-73.8 per US$ during Oct-18.