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| Indian Economic Update
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RBI, in consultation with the government, cancelled the remaining monthly gilt switch auctions FY22 citing that the budgetary provision of switches for the current... year has been completed
The Power Ministry notified the first phase of green hydrogen and green ammonia policy. The government aims to reduce the country's dependence on fossil fuel, crude oil imports, and meet its climate targets. Apart from meeting its renewable energy target of 500 GW by 2030, the government also aims to make India an export destination for green hydrogen and ammonia
India’s headline CPI accelerates to a 7-month high of 6.0% YoY in January vs 5.7% YoY in December 2021, with food inflation increasing to 5.4% YoY vs. 4.0% YoY in December, despite a sequential easing of -1.3% MoM on the back of base effect. Core inflation remained stable at 6% YoY
India’s WPI eased to 13.0% YoY in January compared with 13.6% YoY in December. during FYTD22. WPI inflation is running at 12.6% YoY
As part of pre reports, India is likely to export at least 80% of its products to the UAE duty-free, once the bilateral free trade pact comes into effect. Under the Comprehensive Economic Partnership Agreement (CEPA), India would be able to export textiles worth an additional USD 2 billion in the next two years and treble the plastics exports to the UAE under the Comprehensive Economic Partnership Agreement (CEPA), which the two sides will sign on Friday, said people aware of the matter
RBI Bulletin for February 2022 was released. RBI is of the opinion that the FY23 budget alongside the monetary policy sets the stage for economic revival from the shock caused by COVID-19 and noted Governor Das’s commitment that the monetary policy would endeavour to achieve price stability, while ensuring a strong and sustained economic recovery. The bulletin also noted that the impact of the third wave on manufacturing activities have been less pronounced compared to the previous waves, but reiterated the need for continued policy aid as the process of attaining long-term trend levels may take some time
The Finance Ministry, in its monthly economic review, said that the Indian economy is poised to grow at the quickest pace among the league of large nations on the back of various initiatives taken by the Government in budget
Finance Minister Mrs. Nirmala Sitharaman said that the GoI and the RBI are in continuous talks over cryptocurrency and a final decision on virtual digital currency will be taken after detailed consultations, while addressing a press conference after her address to the central board of the RBI. Deputy Governor Mr. T. Rabi Sankar said that it is advisable to ban cryptocurrency in India
RBI Governor Das said that the momentum of inflation in India has been moving down since October and the rise in inflation in the last few months is purely on account of a base effect. He also mentioned that the decision with respect to issuance of sovereign green bonds announced in the Union Budget of FY23 will be taken in March and that the inclusion of government securities on global bond indices is a work in progress.
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| Global Update
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FOMC officials continued to reiterate the need for monetary tightening, going forward. The Federal Reserve Bank of St. Louis President James Bullard said bringing down... inflation might require the central bank to overshoot a neutral target interest rate, which he sees as about 2%. At the same time, Federal Reserve Bank of Cleveland President Loretta Mester said she supports raising interest rates next month and tightening the policy at a faster pace, if needed, to curb inflation
ECB officials played down the need for aggressive tightening going forward. While the ECB Chief Economist reiterated that inflation will remain elevated above the 2% mark in 2022, he stated that the central bank must be careful not to overreact to high near-term inflation and that an aggressive response could lead to too-weak price pressures down the line. Another Governing Council member Pablo Hernandez stated that the central bank should not overreact and advocated a clear, gradual and predictable policy path
The US Senate passed a short-term Government Funding Bill. The measure, which passed with a 65-27 vote, will keep the government running through March 11, 2022
The minutes that were released for 25-26 January FOMC meeting showed that majority of the officials expressed concerns about inflation that would warrant the need for rate hikes and monetary tightening. FOMC officials also talked about the need to resort to balance sheet normalisation later in the year but did not provide any guidance on when this might commence. Lastly, FOMC minutes showed that members might consider an accelerated path towards monetary tightening, if inflation pressures intensify further
The Biden administration rejected Russia’s claims of a troop pullback from Ukraine’s border and said Russia has added as many as 7,000 military personnel to the area. The US administration and its allies in Europe are finalising a package of sanctions if Russia were to launch an invasion, according to U.S. and European officials
Russian President Vladimir Putin said that Moscow is ready for talks with the US and NATO on limits for missile deployment and military transparency
ECB’s Governing Council member Francois Villeroy de Galhau said that ECB could end net asset purchases as soon as Q32022 without triggering an interest rate increase, shortly afterwards
Trade gap narrows to USD 17.4 billion in January from USD 21.7 billion in December. Trade gap for the period April – January increased to USD 159.9 billion vs USD 75.9 billion a year ago. Exports for January increased by 25.3% to USD 34.5 billion, while imports increased by 23.5% to USD 51.9 billion
The Senate Banking Committee in the US is scheduled to vote on President Joe Biden’s five nominees for the Federal Reserve System’s Board of Governors, including Chairman Jerome Powell for a second 4-year term and Lael Brainard to be Vice Chairman of the 7-member Board of Governors
The European Central Bank President Christine Lagarde repeated that officials won’t rush to remove stimulus in the Euro region as she sought to highlight the limit of their power at a time of volatile prices. She also said that the ECB will act at the right time, but only gradually
Concerns about faltering growth has ensured that the PBOC continues to inject liquidity into the financial system. It injected a net CNY 100 billion (USD 15.7 billion) into the banking system through medium-term lending facility, while leaving the borrowing rate unchanged.
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| Equity
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Benchmark indices have opened lower amidst subdued Asian Equity markets as heightened geopolitical tensions are weighing on the markets and keeping them... volatile. Developments over the same need to be watched out for, as it will guide the indices’ performance amidst lack of domestic cues.
During the week Sensex lost 0.55% to close at 57832.97 while Nifty declined 0.56% to close at 17276.30
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| Debt
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Government Bond prices are expected to open higher as the demand may improve, following the announcement of cancellation of the remaining G-Sec switch auctions... for FY22, from RBI. The news of the current geopolitical tensions will be observed carefully, as it could act as a trigger in the market.
10Y benchmark yield ended at 6.66% as compared to 6.70% of previous week
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| Oil
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Oil prices fell on Thursday as talks to resurrect a nuclear deal with Iran entered their final stages, but heightened tensions between top energy exporter Russia and the... West limited losses over Ukraine. Brent crude prices are trading at USD 92.45 per barrel. |
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| Gold
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Gold touched an eight-month high on Thursday, after Russian news reports of a mortar fire in eastern Ukraine boosted demand for the safe-haven metal and as less hawkish... signals from the U.S. Federal Reserve’s last meeting minutes underpinned the bullion. Gold is trading at USD 1893.2 per ounce. |
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| Currency
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INR may open flat against USD as the risk-off sentiment due to the ongoing Eastern Europe tensions improved the demand for the safe haven currency. However, muted... economic data in the US weighed on the USD. Any sharp movement is unlikely, as RBI’s interventions may curb the volatility. The Indian Rupee closed weaker at the 75.11 level against the US Dollar, in the previous trading session. |
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| Sensex |
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During the week Sensex lost 0.55% to close at 57832.97 while Nifty declined 0.56% to close at 17276.30
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| Bond Yields |
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10Y benchmark yield ended at 6.66% as compared to 6.70% of previous week
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Source: ICICI Bank Research, Private Banking Investment Strategy Team, Bloomberg and CRISIL.
Disclaimer:
The information set out herein has been prepared by ICICI Bank in good
faith and from sources deemed reliable. ICICI Bank does not provide any
assurance as regards the accuracy of such information. ICICI Bank does
not accept any responsibility for any errors whether caused by
negligence or otherwise or for any direct or indirect loss / claim/
damage caused to any person, arising out of or in relation to the use of
information communicated herein.
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