Quick Summary
Indian Economic Update
MPC voted unanimously to keep repo rate unchanged at 4%. Accommodative stance maintained with 5:1 majority. Reverse repo rate was kept unchanged at 3.35%. RBI... retained its FY23 growth forecast at 7.8%. FY23 inflation estimated at 4.5% on the back of supply side response from government

The consumer confidence data released by RBI yesterday indicated a mild improvement in the current situation index on the back of better sentiments on general economic situation, household income and spending. While the future expectation index remained in the optimism zone despite some moderation seen amidst the onset of the third wave

India’s FM Nirmala Sitharaman said that the government is willing to allocate more funds for the Mahatma Gandhi National Rural Employment Guarantee Scheme in FY23 than the budgeted INR 730 billion, should demand for the programme so warrant

Finance Minister Nirmala Sitharaman on Wednesday said the projected fiscal deficit of 6.9% for FY22 is a ‘responsible’ target as the government has tried to ensure a balance between keeping up expenditure and being fiscally prudent

India’s Union Minister for Agriculture and Farmers Welfare Narendra Singh Tomar said in Lok Sabha that there was no need to have a separate budget for agriculture and keeping a separate budget for agriculture would neither benefit the country nor the farmers

The government’s focus on capital expenditure in the latest Budget is aimed at not just stirring the supply side, but also stimulating demand without dumping fiscal prudence, Sanjeev Sanyal, Principal Economic Advisor in the Finance Ministry said

India’s exports grew by 28.51% to USD 8.67 billion during Feb 01 to 07, on account of healthy growth in sectors, such as petroleum, engineering and gems & jewellery, according to the preliminary data of the Commerce Ministry

According to Fitch Ratings, the government’s budgeted acceleration in infrastructure capex will provide a fillip to near-to-medium-term growth. The rating agency also mentioned that the nominal GDP growth target for FY23 of 11.1% looks credible and revenue targets, including those for divestments, are also realistic. It further said that the higher fiscal deficits and continued lack of clarity on medium-term fiscal consolidation plans add risks to ratings' projection of a downward trajectory in the government debt to GDP ratio

FADA data indicated that passenger vehicle sales were down by 10% YoY in January, as shortage of semi-conductors continued to weigh. The manufacturers have indicated that the supply of semi-conductors may improve going forward, but the low inventory levels suggest the long waiting periods for passenger vehicle are unlikely to go away anytime soon. The third wave of the pandemic along with price rise and rural distress weighed on the two-wheeler segment, which declined 13% YoY in January, while commercial vehicle sales saw some traction

The GoI is examining the applicability of GST on various cryptocurrency transactions, including mining of digital assets. The issue is being examined internally at the Central Board of Indirect Taxes and Customs (CBIC) and a proposal will be taken to the GST Council, CBIC chairman Vivek Johri said.

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Global Update
With US CPI inflation hitting a multi-decade high of 7.5% YoY in January, FOMC member Bullard stated that he would back the possibility of a 100bps rate... hike over the next three policy meetings implying that he could vote for a 50bps rate hike, in the March policy meeting

The ECB President Lagarde played down the prospect of aggressive monetary tightening by warning the Governing Council that such action would harm the recovery that is in place

As Japanese sovereign yields have risen sharply over the last week, the BoJ announced that it would for the first time since July 2018 conduct a 10-year bond auction at 0.25% on Feb 14, 2022

Indonesia's central bank kept its main policy rates unchanged at record lows on Thursday, as expected, stressing that it aims to maintain currency and financial market stability, while supporting an economic recovery from the COVID-19 pandemic

FOMC members Loretta Mester and Bostic stated that all options were on the table for the size of policymaker’s first interest rate increase in March, but Mester said that she does not see a compelling case for a 50bps rate hike. Mester said, she anticipates it will be appropriate for policy makers to raise U.S. interest rates at a faster pace in this hiking cycle, because inflation is considerably higher and labour markets are much tighter than in 2015

Bank of England Chief Economist Huw Pill pushed back against the prospect of bigger-than-usual interest-rate rises, as he made the case for a ‘measured rather than activist approach’ to policy making.  He also said that the central bank would not rush in making a decision to begin sales of its gilt holdings as part of its QT framework

ECB officials continue to provide guidance that policy rate normalisation could lift off later in 2022. ECB Governing Council member Nagel, who is also the new head of the Bundesbank, said that the central bank might need to raise interest rates this year, if the outlook for Euro-zone inflation does not improve significantly. At the same time, ECB member Schnabel stated inflation would remain high for longer than anticipated

European Union member states say they agree that the tough sanctions should be imposed on Russia in the event it invaded Ukraine, even as detailed plans have yet to be shared on paper

After providing subtle hints about possible rate hikes in the policy meeting that was held last week, the ECB President stated that any adjustment to the monetary policy would be ‘gradual’ and there would be a need to remain ‘data-dependent’

As Putin and Macron were unable to reach an agreement after a six-hour meeting yesterday, the US President Joe Biden said the controversial Nord Stream 2 natural gas pipeline between Russia and Germany would be stopped, if the President Vladimir Putin orders an invasion of Ukraine. At the same time, UK PM Boris Johnson said sanctions and other measures will be ready in the event of a Russian attack on Ukraine, and his government will ask parliament for sanctions on Russian individuals and companies. Further, Johnson said, Britain is considering deploying Royal Air Force Typhoon fighters and Royal Navy warships to protect south eastern Europe

The US and Japan reached an agreement that will allow most steel shipments from Japan to enter tariff-free for the first time since 2018 and sees the countries working together to combat Chinese trade practices that harm the industry. However, US officials said that they were losing patience, with China given that the commitments made in the trade deal have not been met so far.

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Benchmark indices trading lower tracking weak global cues. Key Asian Equity indices opened lower, tracking their US counterparts....

During the week Sensex lost 0.83% to close at 58152.92 while Nifty declined 0.80% to close at 17374.75

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Government bond prices are likely to open higher, buoyed by the RBI refraining from hiking the reverse repo rate, at the conclusion of its monetary policy... meeting yesterday. The lack of bond supply is also seen to support gilts as RBI had cancelled this week's INR 240 billion gilt auction, citing a review of the cash balance position of the government.

10Y benchmark yield ended at 6.70% as compared to 6.87% of previous week

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Global crude oil prices are trading lower, as US inflation fanned worries about aggressive interest rate hikes and as investors await the... outcome of US-Iran talks that could lead to an increased global crude supply. Brent crude prices are trading at USD 91.11 per barrel.

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Gold prices are trading lower as a stronger-than-expected US inflation reading ramped up odds for a hefty interest rate hike, next month. Gold is... trading at USD 1826.0 per ounce.

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Rupee may open steady against USD as the greenback rose against a basket of major currencies in early Asian trade after US consumer prices grew faster... than expected in January, raising hopes that the US Fed will act forcefully to combat growing inflation. However, RBI’s intervention may curb any sharp movement in the pair. The Indian Rupee depreciated to 75.54 level against the US dollar in the previous trading session.

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During the week Sensex lost 0.83% to close at 58152.92 while Nifty declined 0.80% to close at 17374.75
Bond Yields
-17 bps
10Y benchmark yield ended at 6.70% as compared to 6.87% of previous week
Source: ICICI Bank Research, Private Banking Investment Strategy Team, Bloomberg and CRISIL.
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