CPI stays soft, IIP robust

Indian Economic Update

  • Consumer Price Index (CPI) at 3.2% remained stable as last month – benign inflation for 11th consecutive month. Core inflation was 20 bps lower MoM at 4.2%.
  • Positive surprise came from food inflation; rest were in line. Disinflation recorded in fuel and clothing.
  • Index of Industrial Production (IIP) at 4.3% was strong considering high base and current environment.
  • Growth was favourable in mining, electricity and manufacturing. Consumer non-durables were strong. Infrastructure was soft while consumer durables and capital goods contracted.
  • Widespread rainfall in August has led to Southwest monsoons being 3% above normal this season amidst stark spatial variation. The deficit in kharif sowing has narrowed sharply and the prospect for rabi sowing has improved on back of replenished groundwater and higher reservoir levels.

Global Update

  • The European Central Bank (ECB) delivered a substantial monetary easing programme by cutting its policy rate by 10 bps to -0.50%, re-introducing Quantitative Easing (QE), adopting a two-tiered deposit rate system, enhancing the forward guidance, improving the pricing of the Targeted Longer-Term Refinancing Operations (TLTRO III) programme and committing to reinvesting maturing securities.
  • EUR yields have moved higher and the curve has re-steepened reflecting the terms of the two-tiered system.
  • The US President said that he plans to postpone the imposition of the 5% incremental increase in tariffs that was due to come into effect on Oct 01, 2019 by two weeks to Oct 15, 2019.
  • Malaysia Central Bank kept its benchmark interest rate unchanged at 3.0% on Thursday.
  • The Central Bank of the Republic of Turkey (CBRT) slashed its key rate by 325 bps to 16.5% on Thursday.


Indian equities ended higher. Buying in banking, financial services and infrastructure sectors supported the markets. However, selling in information technology stocks, as the rupee moved higher, kept the upside in check.


During the week Sensex gained 1.09% to close at 37384.99 while Nifty advanced 1.18% to close at 11075.9.


Indian bonds ended lower as surge in overnight indexed swap rates spilled over to bond market. Rise in US Treasury yields and crude oil prices weighed on the bond prices.


The 10Y benchmark yield ended at 6.63% as compared to the previous week’s close of 6.60%.


Oil traded lower as the meeting of the Organisation of Petroleum Exporting Countries and partners (OPEC+) alliance yielded no discussion about deepening supply cuts but focussed instead on bringing Nigerian and Iraqi output down to their agreed quotas. Also feeding bearish sentiment is the International Energy Agency (IEA) oil report which was relatively bullish as the organisation kept its demand growth forecast unchanged at 1.1 million barrels per day (mbpd) for 2019.


Gold dropped to a near one-month low to hold below the key USD 1,500 pivot on the back of an improvement in appetite for riskier assets. However, the yellow metal is supported by the ongoing central bank stimulus.


The Indian Rupee ended stronger against the US Dollar. Trump's postponement of tariffs on Chinese goods improved the risk appetite. Strength in offshore Chinese Yuan supported. Concerns over slowing growth and some importers' dollar demand weighed on the Rupee.
The Dollar index is traded lower.
Pound remained supported as investors are optimistic that a hard Brexit will be avoided.
The improvement in the risk sentiments coupled with weaker than expected domestic data is weighing on the demand for Yen.

Source: ICICI Bank Research, Private Banking Investment Strategy Team, Bloomberg and CRISIL.