Economic Roundup, July 12, 2019

Economic Environment

  • Industrial Production, Consumer Confidence, Inflation

How are the Indian and global economic environments affecting the financial markets?

India’s industrial production,compared to a year ago, slipped, consumer confidence is lower, and inflation – albeit below Reserve Bank of India (RBI) target – is edging higher closer to the 4% target (the mid-point of the 2-6% inflation targeting range). While these indicators suggest that the RBI could lower the repo rate in August, it brings into doubt how much room the RBI has to cut before it returns to worrying about inflation. Moreover, the effectiveness of RBI rate cuts is also in doubt given the reluctance of the banking sector to lend and to transmit down the rate cuts amidst the bad loans crisis. These circumstances place the 7% growth forecast for the Indian economy in fiscal 2019-20 in doubt especially amidst global slowdown. It must be noted here that the Indian financial markets are taking cue from the signals from global central banks to cut interest rates to ward off the slowdown and are still up.

What to expect from the markets next week?

Corporate earnings results and global economic conditions will determine whether the Reserve Bank of India (RBI) will cut the repo rate again in August. A July rate cut by the US Federal Reserve could set off a rate cut by the RBI in India. Financial markets will react to corporate earnings and any new Information on China, Iran and the global economic front.

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