Economists Lower India’s CPI Forecasts on Falling Food Prices

The Indian economy will expand 7.3 percent in fiscal year 2018, 7.7 percent in fiscal year 2019 and 7.7 percent in fiscal year 2020, according to a survey conducted by Bloomberg News. Growth forecasts were lowered slightly for this year and next year when compared to last month’s survey.

Analysis

Economists lowered their CPI forecasts for the 2018 and 2019 fiscal years to 4 percent and 4.75 percent, respectively, from 4.5 percent and 5 percent in last month’s survey after inflation fell to a record low 2.18 percent in May. Food and beverage prices declined by 0.22 percent last month after increasing 1.21 percent in April. Economists now expect a repurchase rate cut by the end of the third quarter of this year after previously not expecting any change.

Key Takeaways

  • Survey of 29 economists conducted from June 22 to June 28
  • Chance of a recession happening over the next 12 months is zero percent, according to 10 respondents
  • Q2 2017 GDP forecast at +7.0% y/y versus prior survey +7.1%
    • Q3 2017 GDP forecast unchanged at +7.0% y/y versus prior survey
  • 2018 WPI forecast unchanged at +3.00% y/y versus prior survey
  • Reserve Bank of India repurchase rate seen at 6.00% by end-3Q17, current rate is 6.25%
  • See graph of GDP forecasts

Source Comments

“Structural reforms are pushing up potential growth, but high real interest rates are preventing a full-fledged recovery,” said Abhishek Gupta, an economist at Bloomberg Intelligence in Mumbai, “This suggests the output gap will persist and inflation continue to surprise on the downside -- prompting the central bank to cut rates at its next policy review in August.”

“Since mid-2016, CPI inflation has fallen sharply to a record low of 2.2 percent in May,” said Arjen van Dijkhuizen, a senior economist at ABN Amro Bank in Amsterdam, “That partly reflects a sharp drop in food price inflation. We have lowered our CPI forecasts for this year and next year to 4.0 percent and 4.5 percent respectively. With the real policy rate having surged to over 4 percent in May, the Reserve Bank of India has shifted its tone recently. We now expect the RBI to cut the key policy rate by 25-50 basis points in the remainder of this year.”

Full Survey Results

2Q3Q4Q1Q2Q3Q4QFY AvgFY AvgFY Avg
2017201720172018201820182018201820192020
GDP YOY%7.0%7.0%7.4%7.9%7.5%7.5%7.8%7.3%7.7%7.7%
 Previous survey7.1%7.0%7.7%7.9%7.7%7.6%n/a7.5%7.8%n/a
GFCF YOY%3.5%4.5%5.0%5.6%n/an/an/a4.2%5.2%n/a
 Previous surveyn/an/an/an/an/an/an/a4.0%5.2%n/a
GVA YOY%6.7%6.8%7.2%7.7%n/an/an/a7.3%7.6%n/a
 Previous survey6.9%6.8%7.3%7.8%n/an/an/a7.4%7.8%n/a
CPI YOY%2.30%3.50%4.10%4.35%5.10%5.20%5.00%4.00%4.75%4.80%
 Previous survey3.00%4.00%4.65%4.70%5.20%5.20%n/a4.50%5.00%n/a
WPI YOY%2.44%2.80%3.25%2.56%n/an/an/a3.00%3.90%n/a
 Previous survey2.85%3.67%3.10%1.65%n/an/an/a3.00%n/an/a
IP YOY%2.5%5.2%5.8%6.1%n/an/an/a4.9%6.8%n/a
 Previous surveyn/an/an/an/an/an/an/a3.8%n/an/a
M3 YOY%n/an/an/an/an/an/an/a10.9%12.5%n/a
 Previous surveyn/an/an/an/an/an/an/a10.6%n/an/a
Current Acct. % GDPn/an/an/an/an/an/an/a-1.2%-1.5%n/a
 Previous surveyn/an/an/an/an/an/an/a-1.3%-1.5%n/a
Budget as a % GDPn/an/an/an/an/an/an/a-3.2%-3.0%n/a
 Previous surveyn/an/an/an/an/an/an/a-3.2%-3.0%n/a
2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q
2017201720172018201820182018201920192019
Repo Rate6.25%6.00%6.00%6.00%6.00%6.00%6.13%6.25%6.00%6.00%
 Previous survey6.25%6.25%6.25%6.25%6.25%6.25%6.25%6.25%6.25%6.25%
Reverse Repo Rate6.00%5.75%5.75%5.75%5.75%5.75%5.88%6.00%5.75%5.75%
 Previous survey6.00%6.00%6.00%6.00%6.00%6.00%6.00%6.00%6.00%6.00%
Cash Reserve Ratio4.00%4.00%4.00%4.00%4.00%4.00%4.00%4.00%4.00%4.00%
 Previous survey4.00%4.00%4.00%4.00%4.00%4.00%4.00%4.00%4.00%4.00%
10-Year Bond6.50%6.53%6.60%6.60%6.55%6.53%6.45%n/an/an/a
 Previous survey6.78%7.00%6.95%7.00%6.88%6.75%n/an/an/an/a

NOTE: All figures are expressed as of the end of the quarter except for GDP.

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