Pranam,
Quotes from Barclays Capital:
-Despite the drop in CPI inflation, the Reserve Bank of India (RBI) is likely to maintain a cautious bias on monetary policy, especially given the volatility in the INR and the need to finance the current account. We expect May WPI inflation, scheduled to be released on 14 June, to print at 5.0% y/y, up from 4.9% in April.
-Core WPI inflation is low, at 2.8%, and we expect it to remain soft in May. We maintain our view that RBI will cut the repo rate 25bp in its next meeting on 17 June, but we see increasing risks of a pause given INR weakness.
-But while it is difficult for the RBI to ease monetary policy now, we do not believe INR weakness will constrain the central bank for a long period. We continue to believe the flow of weak growth data and more benign inflation trends will create room for further monetary easing and expect another 75bp of cuts by end 2013.
-India's current account deficit is likely to remain elevated and financing it will be a challenge in the coming weeks. We expect policy tools to be used to support sentiment, including further liberalisation of the capital account.
-Further possible measures may include limited RBI intervention, debt market liberalisation and a relaxation of FDI limits. We maintain a tactical long USD/INR position at the moment, given doubts over the RBI's ability to lower rates at the upcoming meeting, despite weak growth.
-India's industrial production (IP) grew 2.0% y/y in April (Barclays: 3.0%; consensus: 2.4%). While IP has started to stabilise in growth territory, there are few signs that growth will accelerate for now, in our view. The downside largely came from weaker capital goods production, which had shown unusual strength in the past couple of months.
-On a more positive note, IP growth for March was revised higher to 3.4% (from 2.5% y/y). Given the mixed data (ie, downside surprise in April, and an upward revision for March), we think the print is unlikely to weigh on the central bank's upcoming policy decision. We think the recent weakness in the INR and upcoming WPI release (14 June) are likely to be more relevant for the RBI decision.
-Further possible measures may include limited RBI intervention, debt market liberalisation and a relaxation of FDI limits. We maintain a tactical long USD/INR position at the moment, given doubts over the RBI's ability to lower rates at the upcoming meeting, despite weak growth.
-India's industrial production (IP) grew 2.0% y/y in April (Barclays: 3.0%; consensus: 2.4%). While IP has started to stabilise in growth territory, there are few signs that growth will accelerate for now, in our view. The downside largely came from weaker capital goods production, which had shown unusual strength in the past couple of months.
-On a more positive note, IP growth for March was revised higher to 3.4% (from 2.5% y/y). Given the mixed data (ie, downside surprise in April, and an upward revision for March), we think the print is unlikely to weigh on the central bank's upcoming policy decision. We think the recent weakness in the INR and upcoming WPI release (14 June) are likely to be more relevant for the RBI decision.
* India sells 50 bln Rupees of 364-day treasury bills at 93.12 Rupees - RBI
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Hv a Gr8 day,
Warm Regards,
AXIT D SHAH
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