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India Equity Research Reports, IPO and Stock News
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India Macro Watch
9% inflation = 100bp RBI rate
hike
9% March WPI inflation
Actual: 9.0%
Consensus: 8.4%
Previous: 8.3%
BofAML : 8.4%
Bottom line: 25bp RBI hike on May 3, June, July, October
„ Happy Baisakhi! Not good news though. March inflation, at 9%, just surprised
up . In our view that makes a 25bp RBI rate hike on May
3 almost inevitable. In addition, the RBI will likely also need to hike 25bp
again in June (instead of our earlier expected pass). We thus now expect
100bp (from 75bp earlier) of rate hikes by October. So, why not
50bp on May 3? Because the RBI's tightening over the past year is still to
have a full impact. And growth will start to hurt once lending rates go up
another 100-150bp (that we expect by mid-2012). As it is, industrial growth
will remain weak till mid-2011. Do read our 2011 views here.
Baisakhi: A harvest festival on April 15 that begins the new Hindu solar year.
Why it matters: Interest rates cycling up
„ Incoming data strengthen our standing call of a higher rate regime. We
expect the RBI to hike another 100bp by October and also tighten bank
lending norms to real estate in the May 3 policy. In reaction, we continue to
expect lending rates to go up 75bp in 2HFY12 on excess loan demand.
Although loan demand should persist at 20% levels, the RBI will likely restrain
money/deposit growth to about 17.5% as part of its anti-inflationary policy.
Even so, it will need to inject Rs1600bn via OMO to generate this order of
money/deposit expansion with a high 3.1% of GDP current account deficit
restraining FX intervention. This, in turn, should encase the 10y in a range
about a mid-cycle 8% despite a high 7.9% of GDP fiscal deficit. Do read our
last RBI report (with Ashok Bhundia) here.
Details: Core inflation going up
„ Core inflation (i.e., inflation adjusted for agro, oil and metal shocks) is
expectedly beginning to go up . We continue to expect
core inflation to accelerate to 7.5% levels in 2H11 as corporates pass on
rising input costs due to higher commodity prices. This factors in a 10% hike
in diesel, cooking gas (LPG) and kerosene prices after the state polls end in
mid-May. Do read our inflation roadmap report here.
Next up in India: South-west monsoon forecast
„ India: IMD monsoon forecast (South-west monsoon), Tuesday, 19 April 2011.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Macro Watch
9% inflation = 100bp RBI rate
hike
9% March WPI inflation
Actual: 9.0%
Consensus: 8.4%
Previous: 8.3%
BofAML : 8.4%
Bottom line: 25bp RBI hike on May 3, June, July, October
„ Happy Baisakhi! Not good news though. March inflation, at 9%, just surprised
up . In our view that makes a 25bp RBI rate hike on May
3 almost inevitable. In addition, the RBI will likely also need to hike 25bp
again in June (instead of our earlier expected pass). We thus now expect
100bp (from 75bp earlier) of rate hikes by October. So, why not
50bp on May 3? Because the RBI's tightening over the past year is still to
have a full impact. And growth will start to hurt once lending rates go up
another 100-150bp (that we expect by mid-2012). As it is, industrial growth
will remain weak till mid-2011. Do read our 2011 views here.
Baisakhi: A harvest festival on April 15 that begins the new Hindu solar year.
Why it matters: Interest rates cycling up
„ Incoming data strengthen our standing call of a higher rate regime. We
expect the RBI to hike another 100bp by October and also tighten bank
lending norms to real estate in the May 3 policy. In reaction, we continue to
expect lending rates to go up 75bp in 2HFY12 on excess loan demand.
Although loan demand should persist at 20% levels, the RBI will likely restrain
money/deposit growth to about 17.5% as part of its anti-inflationary policy.
Even so, it will need to inject Rs1600bn via OMO to generate this order of
money/deposit expansion with a high 3.1% of GDP current account deficit
restraining FX intervention. This, in turn, should encase the 10y in a range
about a mid-cycle 8% despite a high 7.9% of GDP fiscal deficit. Do read our
last RBI report (with Ashok Bhundia) here.
Details: Core inflation going up
„ Core inflation (i.e., inflation adjusted for agro, oil and metal shocks) is
expectedly beginning to go up . We continue to expect
core inflation to accelerate to 7.5% levels in 2H11 as corporates pass on
rising input costs due to higher commodity prices. This factors in a 10% hike
in diesel, cooking gas (LPG) and kerosene prices after the state polls end in
mid-May. Do read our inflation roadmap report here.
Next up in India: South-west monsoon forecast
„ India: IMD monsoon forecast (South-west monsoon), Tuesday, 19 April 2011.
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