Indian Economic Update
- As widely expected the Monetary Policy Committee (MPC) kept rates unchanged and maintained the stance as accommodative.
- MPC revised its Q4 FY2020 through H1 FY2021 forecasts significantly upwards, with inflation only showing some respite in Q3 FY2021 at an expected 3.2%.
- RBI’s FY2021 growth forecasts were also revised downwards by 100 bps, with expectations of growth recovering above 6% only in Q3 FY2021.
- India's Purchasing Managers' Index (PMI) for the services sector rose to a seven-year high of 55.5 in January as new orders and output increased at the fastest pace in seven years. PMI manufacturing also rose to 55.3, its 8-year high in January. Hiring activity improved in January, with firms increasing employment at the quickest rate in close to seven-and-a-half years.
- India’s Union Budget FY2021 pegged fiscal deficit to Gross Domestic Product (GDP) ratio at 3.5% for FY2021, while the same for FY2020 was expected to be 3.8%.
- Deaths from the coronavirus outbreak climbed towards 500 and cases worldwide reached almost 25,000. Markets rallied after Chinese television reported possible progress in the hunt for a treatment.
- China said it would slash tariffs on USD 75 billion of U.S. imports in half as part of its efforts to implement a recently signed trade agreement with Washington.
- Bank of China cut the 7-day Reverse Repo rate by 10 basis points to 2.4%. It added CNY 900 billion of funds. It also injected CNY 300 billion with 14-day contracts at 2.55%. The total is the largest single-day addition of its kind since 2004, amid attempts to support the economy from the fallout of the coronavirus.
- The US President has been acquitted by the Senate in the impeachment trial.
- The Reserve Bank of Australia maintained its official cash rate at a record low of 0.75%.
Indian Government bonds ended steady, as market participants perceive comments by RBI as intent to keep liquidity at surplus for a prolonged period. RBI comments were seen as dovish on inflation-growth dynamics.
The 10Y benchmark yield ended at 6.43% as compared to the previous week’s close of 6.60%.
The Indian Rupee ended stronger against the dollar because global appetite for riskier assets improved following Chinese media reports that a research team at Zhejiang University has likely found a potent drug to treat people infected by coronavirus.
The greenback continued to gain some ground against the safe haven assets as risk sentiment improved.
The USD/JPY pair moved higher. Improved economic PMI survey in the UK pushed the GBP/USD pair higher.
Source: ICICI Bank Research, Private Banking Investment Strategy Team, Bloomberg and CRISIL.