Key Highlights:
Global:
- With US inflation and labour market cooling, Fed rate action in September is a close call.
- US NFP gains have been revised lower every month in 2023, representing loss of 245K jobs.
- Waning recovery in China led to PBOC rate cuts; Yuan at over two-decade low.
- With longer-end yields rising at a faster pace US yield curve inversion has reduced.
- US Dollar and yield upside seen capped as Fed could end rate hike cycle before ECB and BOE.
Domestic:
- Base normalisation, weather-driven risks, external sector weakness to weigh on FY24 growth prospects.
- Progress of the southwest monsoon has spatial as well as temporal variations.
- Given the status of reservoir levels, six states – Maharashtra, Jharkhand, Karnataka, Odisha, West Bengal, and Tamil Nadu remain the most vulnerable.
- Damage to food crops due to deficit rainfall in eastern and southern India, along with flooding in certain parts of northwest India, can add to upside risks to inflationary pressures over the near term.
- We revise our FY24 inflation projection to 5.6% from 5.3% previously.
- Services export growth rebounded in July (17% y-o-y) after some moderation in the last 3 months.
- High investment flows along with growing ECB borrowing improved overall BoP situation.
- Narrowing interest rate differentials and rising oil prices can weigh on the rupee in the near-term.
- We expect USD/INR to remain within 81-83 by end-FY24.
- 10-year bond yield expected to trade within 7-7.2% by end-FY24.
