Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
3.7% IIP + 8.4% inflation =
25bp RBI rate hike
Bottom line: 3.7% IIP + 8.4% inflation = 25bp RBI rate hike
„ We continue to expect the RBI to hike policy rates by 25bp on June 16. Yes,
March industrial growth, due Thursday, will persist at a weak 3.7% yoy on
base effects (Chart 1). Although industrial growth has collapsed to 3.3% yoy
during December-February from 16.6% last year, deseasonalized mom
remains comparable at a pretty healthy 1%. The RBI will thus focus on April
inflation which should turn in at a still high 8.4% on next Monday (Chart 2). Of
course, forecasting is complicated by the fact that inflation is understated by
100bp and updating depends on compilers. Anyways, in response to RBI
action, lending rates will likely go up 100bp by March 2012. The 10y,
however, should trade in a range around a mid-cycle 8% as the RBI will need
to OMO in 2HFY12. Do read our inflation understated report here.
Why it matters: Interest rates cycling up
„ We continue to expect the RBI to hike policy rates by another 25bp each on
June 16, July 26 and October 25 to contain inflation. In reaction, lending rates
should go up 75bp in 2HFY12 on excess loan demand (after June's 25-50bp).
As expected, the RBI wants to restrain money/deposit growth rate to 17%
below its 19% loan demand forecast. Even so, it will need to inject about
Rs1500bn via OMO to generate this order of money/ deposit expansion with
a high 3% 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. Of course, the RBI will likely need not OMO till
July-August as the money market deficit will remain below the informal trigger
of 1% of bank book (Rs500bn).
Details: Fall in commodity price inflation not enough yet
„ Oil: Delhi still needs to hike oil prices to contain oil subsidies and maintain
fiscal discipline despite the US$10/bbl drop in oil prices. A 10% hike in diesel,
cooking gas and kerosene will impact inflation by 70bp directly and 120bp
overall (Table 2). Besides, the industry ministry has not updated the data on
crude prices in the wholesale price index since January. This alone will add
25bp to inflation one day.
„ Raw cotton prices: The 32.5% drop in global raw cotton prices from peak is
still not enough to pull down local – 27.5% in March - cotton textiles price
inflation. While 2010 saw a bumper crop, much depends on the rains.
„ Edible oil: Our palm oil analyst does expect CPO prices to drop. At the same
time, a drop in domestic edible oil prices needs to wait as the increase in
palm oil prices has not been fully priced in.
Next up in India: 10% hike in administered fuel prices
India: Ministerial meeting on oil prices, Wednesday, 11 May 2011.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
3.7% IIP + 8.4% inflation =
25bp RBI rate hike
Bottom line: 3.7% IIP + 8.4% inflation = 25bp RBI rate hike
„ We continue to expect the RBI to hike policy rates by 25bp on June 16. Yes,
March industrial growth, due Thursday, will persist at a weak 3.7% yoy on
base effects (Chart 1). Although industrial growth has collapsed to 3.3% yoy
during December-February from 16.6% last year, deseasonalized mom
remains comparable at a pretty healthy 1%. The RBI will thus focus on April
inflation which should turn in at a still high 8.4% on next Monday (Chart 2). Of
course, forecasting is complicated by the fact that inflation is understated by
100bp and updating depends on compilers. Anyways, in response to RBI
action, lending rates will likely go up 100bp by March 2012. The 10y,
however, should trade in a range around a mid-cycle 8% as the RBI will need
to OMO in 2HFY12. Do read our inflation understated report here.
Why it matters: Interest rates cycling up
„ We continue to expect the RBI to hike policy rates by another 25bp each on
June 16, July 26 and October 25 to contain inflation. In reaction, lending rates
should go up 75bp in 2HFY12 on excess loan demand (after June's 25-50bp).
As expected, the RBI wants to restrain money/deposit growth rate to 17%
below its 19% loan demand forecast. Even so, it will need to inject about
Rs1500bn via OMO to generate this order of money/ deposit expansion with
a high 3% 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. Of course, the RBI will likely need not OMO till
July-August as the money market deficit will remain below the informal trigger
of 1% of bank book (Rs500bn).
Details: Fall in commodity price inflation not enough yet
„ Oil: Delhi still needs to hike oil prices to contain oil subsidies and maintain
fiscal discipline despite the US$10/bbl drop in oil prices. A 10% hike in diesel,
cooking gas and kerosene will impact inflation by 70bp directly and 120bp
overall (Table 2). Besides, the industry ministry has not updated the data on
crude prices in the wholesale price index since January. This alone will add
25bp to inflation one day.
„ Raw cotton prices: The 32.5% drop in global raw cotton prices from peak is
still not enough to pull down local – 27.5% in March - cotton textiles price
inflation. While 2010 saw a bumper crop, much depends on the rains.
„ Edible oil: Our palm oil analyst does expect CPO prices to drop. At the same
time, a drop in domestic edible oil prices needs to wait as the increase in
palm oil prices has not been fully priced in.
Next up in India: 10% hike in administered fuel prices
India: Ministerial meeting on oil prices, Wednesday, 11 May 2011.
No comments:
Post a Comment