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| Indian Economic Update
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RBI Governor Das hinted at further rate hikes by the Central Bank in an effort to contain the inflation while keeping growth in mind....He said the Central Bank wants to raise interest rates in the “next few” meetings and will update its inflation projections in the June policy meeting
Food Secretary Sudhanshu Pandey said that the Government decided to allow imports of crude soya oil and crude sunflower oil at nil duty to ease supply shortages
Union Cabinet approves the sale of the Centre's 29.54% residual stake in Hindustan Zinc Ltd, currently valued at INR 380 billion, against the backdrop of a delay in the strategic sale of Pawan Hans, Shipping Corp of India Ltd, IDBI Bank, BPCL and the scaled-down public offering of LIC
Union Government has no immediate plans for additional borrowing to gap the shortfall in revenue on account of reduction in excise duties, as per reports.
Government of India allows for duty-free import of 20 lakh metric tonnes of crude soybean and sunflower oil for FY23 and FY24 and placed restraints on export of sugar, in a bid to soften the rising inflation and cool the domestic prices
Union Minister Piyush Goyal, addressing a session organised on the sidelines of World Economic Forum 2022, said that India needs to focus on value added exports and stressed on the need to focus on service sector exports
Union Government has released INR 475.9 billion to states in April 2023, at 21.5% YoY growth on tax devolution, as their share in central taxes and duties
Reports suggest that GST rate revision, in a bid to rationalise the rates, may be delayed, due to the deteriorating economic conditions including surging inflation while speculation is rife that the government may be considering additional short to medium-term measures to dampen the inflation further
The government of India cut the excise duty on petrol and diesel by INR 8/litre and INR 6/litre resulting in INR 9.5/litre and INR 7/litre reduction in petrol and diesel prices at the retail level. It also reduced customs duty on import of a number of raw materials such as coking coal, coke, semi-coke and ferronickel while duty on exports of iron ore has been hiked up to 50% and a few steel intermediaries to 15%
RBI board approves transfer of INR 303 billion as dividend to GoI for FY23, lower than the budgeted estimate of INR 739 billion
The Union government is mulling borrowing an additional USD 13 billion to offset the fuel-tax cut, in addition to the budgeted INR 14.3trillion theCentral Government is set to borrow in FY23.
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| Global Update
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Chinese Premier Li Keqiang warned of dire consequences if officials don’t move decisively to prevent the economy from sliding further, saying a contraction... in the second quarter must be avoided. He said China would pay a huge price with a long road to recovery if the economy can’t keep expanding at a certain rate.
US consumers still largely expect the current inflationary shock to be temporary and for price gains to be low and stable in the longer run, according to a report released Thursday by the Federal Reserve Bank of New York
The Bank of Russia lowered its benchmark to 11% from 14% on Thursday at an extraordinary meeting it announced only a day earlier reflecting reduced financial stability risks.
Russian President Vladimir Putin told Italian Prime Minister Mario Draghi Moscow that he is “willing to make a significant contribution to overcoming the food crisis” on the condition that the “politically-motivated restrictions” are lifted.
The FOMC minutes for the policy meeting that was held over 3-4 May 2022 confirmed that 50bps rate hikes in the June and July policy meetings is on the cards and that the focus will be to take policy rates to the neutral level. However, several policymakers indicated that there could be scope to review the pace of tightening later in the year based on the evolution of data. In short, the FOMC’s actions post July will become more ‘data-dependent’.
The Bank of Korea raised the policy rate by 25bps to 1.75% responding to ongoing inflation concerns. Inflation forecasts were revised higher from 3.1% YoY to 4.5% YoY in 2022 while growth projections were revised lower from 3% to 2.7% for 2022
The Bank of England needs to tighten policy further to fight rising inflation, but it’s also wary of acting too quickly and risking pushing the UK into recession, according to Chief Economist Huw Pill.
Bank Indonesia announced a quicker pace in RRR hikes, ordering banks to park 7.5% of their reserves starting July and 9% from September. It left the benchmark 7-day reverse repurchase rate at a record low of 3.5%.
The ECB Governing Council Member Robert Holzmann said that the ECB should consider kicking off its interest-rate hiking cycle with a half-point increase to convince people that it’s serious about fighting inflation.
China rolled out a broad package of measures to support businesses and stimulate demand as it seeks to offset the damage from Covid-19 lockdowns on the world’s second-largest economy. The measures include CNY 140 billion (USD 21 billion) in additional tax rebates and CNY 300 billion in railway construction bonds.
FOMC members—George and Bostic—re-affirmed that policy rates will rise by 100bps over June-July. However, Bostic said that the central bank could consider a pause in the September policy meeting.
The Biden administration announced that a dozen Indo-Pacific countries would join the US in a sweeping economic initiative designed to counter China’s influence in the region. He also indicated that the US government will continue to support the independence of Taiwan.
Beijing reported a record number of COVID-19 cases during its current outbreak, reviving concern that the capital might face a lockdown as authorities seek to stamp out community spread of the virus.
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| Equity
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Benchmark indices are likely to open higher tracking gains in Asian equity markets as better than expected corporate earnings aided the sentiment. ... In addition, concerns over growth slowdown and resultant less aggressive hikes by central banks areexpected to support the riskier assets.
During the week Sensex gained 1.02% to close at 54884.66 while Nifty advanced 0.53% to close at 16352.45
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| Debt
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Government bond prices are likely to open lower as participants may place short bets ahead of the weekly debt sale worth INR 330billion. ...Participants will also be eyeing the volatile Brent crude prices which may also put some pressure, if itremains elevated.
10Y benchmark yield ended at 7.35% same as compared to previous week
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| Oil
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Brent oil prices eased slightly in early Asian trade on Friday, after surging to a two-month high in ... the previous session as investors focused on signs of tight global supply. It is currently trading at USD 117.29/bbl.
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| Gold
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Gold prices finish modestly higher on Thursday after struggling for direction, as day after minutes of the ... Federal Reserve's May meeting signaled a willingness by the Central Bank to potentially pause its course of rate hikes later this year, should economic data weaken. It is currently trading at USD 1853.06/oz.
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| Currency
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The USD/INR pair is likely to open lower as the FOMC minute indicated that the US Fed might remain flexible on rate hikes later in the year to address ... the changing inflation dynamics.Global risk sentiment also remain robust that will support EM currencies such as the INR. However, gains may be limited, as elevated crude prices will weigh on the INR. Any sharp movement is unlikely due to expected RBI interventions. The Indian Rupee traded flat against the US dollar in the previous trading session moving to the 77.57 level.
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| Sensex |
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During the week Sensex gained 1.02% to close at 54884.66 while Nifty advanced 0.53% to close at 16352.45
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| Bond Yields |
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10Y benchmark yield ended at 7.35% same as compared to 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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