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

The election related uncertainty is expected to weigh on the economic activity

Real Economy:The growth in the Index of industrial production during Mar 2019 is expected to have remained very low largely owing to the high base effect. The broad-based slowdown in the industrial activity in most of the segments within IIP, subdued consumption demand and election related uncertainty is expected to weigh on IIP. D&B expects Index of Industrial Production (IIP) to have moderated by 1.0%-1.5% during Mar 2019.

Price Scenario: Both the CPI and the WPI in April 2019 are expected to remain restrained and grow at the same rate as in the previous month of Mar 2019. While there is a reversal in the inflation in some of the food articles, moderating inflation in some of the segments under the core inflation is likely to keep the overall inflation low. Nonetheless, rising oil prices coupled with strengthening of El Nino conditions that might impact the rainfall during June and July which are the sowing months of the Kharif crop are likely to create inflationary pressures for the non-core segment. D&B expects the CPI inflation to be in the range of 2.7%-2.9% and WPI inflation to be in the range of 2.8% - 3.0% during Apr 2019, respectively.

Money & Finance: Infusion of liquidity in the banking system by the RBI to ensure credit uptake and FII inflows is expected to exert downward pressure on the medium to short term yields, while anticipation of excess supply of the long-term bonds is expected to keep long term yields high even as expectations are building over another policy repo rate cut. We expect that the direction in the movement in prices will gain clarity by Aug 2019, post which the RBI might consider changing its stance. D&B expects 15-91-day T-Bill yield to average at around 6.15%-6.10% and 10-year G-sec yield at around 7.35%-7.30% during Apr 2019.

External Sector: Sustained foreign fund inflows and narrowing of India's trade deficit as imports remain weak is expected to support rupee. However, election related uncertainty is likely to add to depreciation pressures during the month of Apr-19. D&B expects the rupee to remain within the range of around 69.4-69.5 per US$ during Apr 2019.

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