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

The RBI is expected to pause in its rate cut cycle

Real Economy:As the slowdown in consumption demand is expected to prevail, the Index of Industrial Production (IIP) is likely to remain subdued. How the monsoon and the government initiatives will help in reviving the demand and the investment activity will determine the industrial activity in the near to medium term. D&B expects Index of Industrial Production (IIP) to have remain subdued and grown by 3.0%-3.5% during June-19.

Price Scenario: Food prices have started to put an upward pressure on inflation, however, the impact of monsoon on food prices is yet to be realized and could be visible by the end of next month. Nonetheless, the moderation in demand is likely to keep the overall inflation subdued. Global crude oil prices are lower but can inch upwards given the geopolitical issues and flare inflationary pressures. D&B expects the CPI inflation to be lower than the previous month and remain in the range of 2.8%-3.0% and WPI inflation to be in the range of 1.8% - 2.9% during July 19, respectively.

Money & Finance: Lower crude oil prices, low yields of bonds globally, lesser supply of bonds as the government has decided to borrow overseas to fund its expenses and liquidity infusion by the RBI is expected to keep the yields across the curve lower than the previous month. D&B expects 15-91-day T-Bill yield to average at around 5.8%-6.0% and 10-year G-sec yield at around 6.7%-6.9% during July-19.

External Sector: Increasing possibility of a rate cut by US Fed and weakening of dollar coupled with strong domestic equities market are likely to keep rupee strong even as it faces depreciation pressures from slowing growth and high trade deficit. D&B expects the rupee to remain at around 68.7-69.0 per US$ during July-19.

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