Rising inflation and external shocks may lead to slowdown in growth – Dun & Bradstreet report

Mumbai, May 05, 2022

Key economic forecast:

Real Economy: Dun & Bradstreet expects industrial production during March to have been impacted by uncertainty posed by the Russia-Ukraine war, the rise in commodity prices, volatility in the financial markets and supply chain bottlenecks. Dun & Bradstreet expects the Index of Industrial Production (IIP) to have grown by 1.0% -1.5% during March 2022.

Price Scenario: The protracted geopolitical conflict and its spillover effects along with the likelihood of a 4th wave in India will further fuel inflationary pressures. Prices of all commodities are on a rise and the outlook is set to worsen amidst disruptions in global supply chain, rising freight costs and sanctions imposed on Russia. We expect retail prices to rise further as the hike in domestic fuel prices is yet to be factored in the inflation data. High and sticky Wholesale Price Inflation (WPI) core inflation indicates that manufacturers are passing on the higher input costs to their output prices. Dun & Bradstreet expects Consumer Price Inflation (CPI) to be in the range of 6.8% – 6.9% and WPI to be around 13.8% – 14.0% in April 2022.

Money & Finance: Dun & Bradstreet expects that the policy repo rate might not be increased at least in the next Monetary Policy Meeting in June 2022 given that there has been an effective increase in overnight policy rate by 40 basis points with the introduction of standing deposit facility. However, the Central Bank will be under pressure if geopolitical risks further aggravate. Rising borrowing costs will exert upward pressure on bond yields. Outflows in the debt market and downside risks to growth materializing largely from external shocks would also keep yields elevated. Dun & Bradstreet thus, expects the 15-91-day Treasury Bills yield to average at around 3.8% -3.9% and 10-year G-Sec yield at around 6.85%-6.90% during April 2022.

External Sector: Dun & Bradstreet expects rupee to continue to face depreciation pressures as geo-political tension arising from the Russia-Ukraine war will continue to drive portfolio outflows and keep commodity prices high. With crude oil sticking above US$100 per barrel, widening of current account deficit is also exerting downward pressure on rupee. Besides, strengthening of dollar and expected aggressive interest rate hike by the US Fed will restrain upward movement of rupee. Nonetheless, huge forex reserves and the Central Bank’s intervention is likely to lend support to rupee and prevent it from witnessing strong volatility. Dun & Bradstreet expects the rupee to be at 76.0 – 76.3 per US$ band during April 2022.

Dr. Arun Singh, Global Chief Economist, Dun & Bradstreet said, “The balance of risks faced by the Indian economy are tilted to the downside. External risks are weighing upon the pace of recovery of businesses, especially in the manufacturing sector which was just recovering from the 3rd COVID wave. The high-risk averseness of foreign investors, volatility in rupee, surge in commodity prices and the consequent rise in interest rates will impact India’s short term growth prospects. Nonetheless, the positive aspect is that demand remains resilient, GST collections have touched record high and India has overachieved its export target in FY22 despite the supply chain disruptions, skyrocketing freight charges and container shortages. The new free trade agreements that India has inked with UAE and Australia and is likely to forge with several countries such as UK, Europe etc. would boost to India’s export.”

Dun & Bradstreet’s Economy Observer Forecast
VariablesForecastLatest PeriodPrevious period
IIP Growth1.0% – 1.5% Mar-221.69% Feb-221.46% Jan-22
Inflation WPI13.8% – 14.0% Apr-2214.55% Mar-2213.11% Feb-22
CPI (Combined)6.8% – 6.9% Apr-226.95% Mar-226.07% Feb-22
Exchange Rate (INR/US$)76.0 – 76.3 Apr-2276.21 Mar-2274.99 Feb-22
15-91 day’s T-Bills3.8% – 3.9% Apr-223.78% Mar-223.79% Feb-22
10 year G-Sec yield6.85% – 6.9% Apr-226.82% Mar-226.75% Feb-22
Bank Credit*9.5% – 10.0% Apr-228.57% Mar-227.91 % Feb-22

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