Macro Watch
Update on Data Trends | July 2023
Banking
- Excess liquidity in the banking system rose from an average of INR 72,594 crore in May’23 to INR 1.3 lakh crore in Jun’23. This was supported by an increase in deposits on account of the return of INR 2000-denominated banknotes. According to an RBI press release dated Jul 3rd, 76% of the INR 2000-denominated banknotes in circulation have been returned, of which 87% were deposited into the banks.
- While the surplus in average daily liquidity stood at INR 2 lakh crore in the first half of Jun’23, it declined to INR 55,443 crore in the second half. The impact of this could be seen in the average call money rate inching higher to 6.52% in the second half of Jun’23 from 6.41% in the first half.
- SCB non-food credit growth moderated to 15.6% in May’23 vs 16.1% in Apr’23 on account of tepid growth across agriculture, industrial, services and retail loans category. Within retail loans, consumer durables witnessed the sharpest fall in credit growth to 14.2% vs 30.8% in Apr’23.
Inflation
- CPI inflation rose to 4.8% in Jun’23 vs 4.3% in May’23 on account of an uptick in food and beverages inflation (4.6% vs 3.3% the previous month).Within food and beverages, spices, cereals and pulses experienced double-digit inflation at 19.2%, 12.7% and 10.5%
- Deflation in WPI continued for the third consecutive month on account of a deflation in manufactured and food products at -2.7% and -1.2% respectively. The pace of deflation has however, eased across both categories. Fuel and power-led WPI witnessed a de-growth of -12.6% vs -9.2% the previous month.
- A pain point in the overall inflation outlook is rising food inflation, which hinges on monsoon. Currently, northwest India is witnessing excess rainfall whereas Eastern and Southern parts continue to receive deficient rainfall. Overall Kharif sowing is down 1.6% on-year, led by decline in sowing area of rice, pulses and cotton.
Foreign Exchange
- The rupee appreciated by 1% over the course of Jun’23. While the U.S. CPI eased from 4% in May’23 to 3% in Jun’23, the CME Fed Watch tool suggests a 97% possibility of a rate hike by the U.S. Fed in its upcoming Jul’23 meeting. This could help the dollar index nudge higher, putting pressure on the rupee.
Net FPI inflows in Indian capital markets in Jun’23 stood at USD 6.8 Bn compared to USD 5.9 Bn in the previous month. FX reserves stood at USD 593 Bn in end-Jun’23, rising USD 2.5 Bn compared the previous month.
- Narrowing of the current account deficit to 0.2% of the GDP in Q4 FY23 vs 2% in Q3 FY23 and rising FPI inflows are expected to lend further support to the rupee. Policy rate stance by major central banks is however, a key monitorable.
LAF : Liquidity Adjustment Facility, SCB : Scheduled Commercial Banks. Source: TruBoard Research, CMIE, RBI
Foreign Trade
Merchandise trade deficit edged lower to USD 20.1 Bn in Jun’23 vs USD 22 Bn in May’23 on account of a sharp fall in merchandise imports. Oil and non-oil & non-gold imports contracted 33.8% and 14.5% on year, respectively.
Services trade balance has remained stable, albeit a marginal drop to USD 11.2 Bn in Jun’23 from USD 11.6 Bn in May’23. According to Balance of Payments data, telecom, computer and information sector accounted for 48% of the net exports of services in Q4FY23.
Easing of global commodity prices (energy and base metal prices) should help ease merchandise trade deficit further.
Industrial Activity
Growth in Index of Industrial Production slowed to 1.1% in Mar’23 compared to 5.8% in Feb’23. This was on account of a slowdown in manufacturing activity to 0.48%, compared to 5.6% the month before. IIP growth throughout FY23 stood at 5.4% vs 7.4%* in FY22.
Slowing domestic demand explains the de-growth in consumer durables to 8.4% on-year in Mar’23 compared to a de-growth of 4.1% in Feb’23. The same pattern is reflected in falling core imports. Continued thrust on capex and construction activity led to a growth in infrastructure and construction goods output and capital goods output (5.4% and 8.1% YoY respectively).
Wearing apparel, computer electronics and furniture products witnessed the sharpest de-growth within manufacturing activity at 30.6%, 28% and 9.5%.
Source: TruBoard Research, CMIE, *Apr’21 YoY excluded for calculating IIP for FY22.
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Team:
Anuj Agarwal, Chief Economist
Ria Rattanpal, Research Associate
Team:
Anuj Agarwal, Chief Economist
Ria Rattanpal, Research Associate
Disclaimer
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