E
CO
S
COPE
The Economy Observer
18 December 2013
RBI's status quo mode ushers biggest change in
RBI's policy review
policy paradigm
RBI keeps rates unchanged
Guidance mentions policy
Recognizes role of uncertainties in decision making; remains
Also keeps CRR/SLR and other key
vigilant on inflation
projections for economy unchanged
Contrary to market expectations, the RBI kept policy rates unchanged. It
also kept the reserve ratio, growth, inflation and monetary projections
unchanged.
Its inflation assessment as well as guidance, however, remained hawkish.
In its guidance, it explicitly mentioned that the direction is contingent
upon (1) significant easing in inflation on softening of vegetables prices,
and (2) decline in non-food-non-fuel inflation.
The status quo policy is in reality the most significant change in monetary
policy regime in recent times - it explicitly recognizes the role of
uncertainties in decision making. In effect, this would change the policy
paradigm from targeting a single indicator, that is, inflation, through a
single instrument, namely, policy rates, to a more nuanced approach of
multiple targets (various inflation and growth indicators) through multiple
instruments (rates, liquidity, communication and coordination).
This underlines the decision to 'wait' as opposed to 'holding' rates, pending
release of formal data, which would remove the uncertainty in interpreting
inflation data currently marred by the noise in the unseasonal spike in
vegetables prices.
We see a more nuanced and data-dependent (but not just the last print)
course of action ahead. As we expect inflation to subside from December
2013, we believe rates would remain stable and expect a more proactive
liquidity management. We also expect to wade through the tapering, as
slow domestic recovery and a more responsive monetary policy improve
India's preparedness for global events.
dependent on (i) significant easing
of headline inflation, or (ii) decline
in core inflation
Policy highlights role of uncertainty
in decision making; explicitly
mentions 'waiting' for confirmatory
data rather than 'holding' rates
Thus, RBI clearly indicates
inclination to see through noise in
data, take note of incoming
evidence ahead of official data
release and walk contrarian route, if
necessary
Expect inflation to subside from
Dec-13, paving way for stable
monetary policy course ahead
A slowly recovering domestic
economy and a more responsive
monetary policy have improved
preparedness to withstand eventual
tapering
RBI keeps policy rates and liquidity support unchanged
Policy rates unchanged:
Contrary to market expectations (MOSL/Consensus
estimate of 25bp hike), the RBI kept policy rates unchanged. Repo rate remains at
7.75%, MSF/bank rate at 8.75% and reverse repo rate at 6.75%.
Reserve ratios and liquidity support left unchanged:
Simultaneously, the CRR and
SLR too were left unchanged at 4% and 24%, respectively. The ceiling on repo and
term repo were kept unchanged at 0.5% of NDTL, each.
Growth, inflation and monetary projections left unchanged:
The RBI also kept its
5% growth estimate, and its forecasts of March 2014 inflation and FY14 monetary
indicators, unchanged.
Assessment of inflationary risks:
Various indicators highlighted to stress the still
high inflation include: (i) unrelenting rise in CPI inflation, (ii) elevated core CPI
inflation, (iii) yet to materialize benefit of decline in vegetables prices on overall
CPI, (iv) sharp increase in WPI inflation from 2Q onwards and across all categories,
and (v) signs of resumption of high rural wage growth.
Dipankar Mitra
(Dipankar.Mitra@MotilalOswal.com); +91 22 3982 5405
Investors are advised to refer through disclosures made at the end of the Research Report.
1

Considerations for 'waiting to determine monetary policy course':
The reasons
for waiting were highlighted as (i) indications of sharp decline in vegetable prices,
(ii) expected disinflationary impact of recent exchange rate stability, (iii) negative
output gap, and (iv) lag effects of monetary tightening since July. These should
help contain inflation.
Rationale for the decision:
Admitting that the policy decision is a close one, while
current inflation is too high, the RBI nonetheless defended its decision on the
following two factors: (1) inadvisability of an overly reactive policy action, given
the uncertainty of the inflation data and the weak state of the economy, and (2)
the merit in waiting, as monetary policy works with long lags.
Guidance remains hawkish:
The RBI also alluded to the risks of the policy decisions,
namely, (i) disruption of financial markets on account of tapering of quantitative
easing by the US Fed, and (ii) the RBI being perceived as soft on inflation.
Reiterating that the RBI would remain vigilant, it sought to guide market
expectations through a clearer description of its policy reaction function: if the
expected softening of food inflation does not materialize and translate into a
significant reduction in headline inflation in the next round of data releases, or if
inflation excluding food and fuel does not fall, it will act, even on off-policy dates,
if warranted.
RBI keeps rates unchanged; may ease now, if inflation subsides
Source: RBI, MOSL
Liquidity eased considerably before the mid-December seasonal stress
Source: RBI, MOSL
18 December 2013
2

WPI inflation expected to subside in the coming months
CPI inflation expected to moderate to near double-digit
levels by March 2014
Source: Government, MOSL
Status quo policy changes every aspect of monetary policy
Firm message to market:
The RBI's decision to keep rates on hold despite
widespread expectations to the contrary sends a firm message to the market. If
necessary, the RBI would not shy away from being contrarian. Also, it has clearly
displayed a bias towards keeping rates stable, as the current inflation reading
provided the best textbook opportunity to hike rates.
Seeing through the noise:
There is a clear signal of the RBI's inclination to see
through the noise in the data. Thus, if vegetables, with just 1.7% weight in the
WPI inflation index, have contributed 2% out of the 7.5% overall inflation, there
is a reason to wait for more evidence to determine whether this is a purely
temporary or a durable phenomenon. The RBI does not want to act in haste,
particularly given the weak economic conditions. The RBI Governor also clarified
that the status quo does not imply that the policy rates are 'on hold' but that he is
simply 'waiting' for more data - clearly articulating that the sum total of indicators
does not point the accentuation of 'generalized' inflationary pressures in the
economy. The fact that incoming evidence on softening vegetables inflation
outside the formal data release has been taken into account in the policy decision
is one of the biggest positive aspects.
Decision making under uncertainties:
Most importantly, there is a fundamental
shift towards a framework known as 'decision making under uncertainties',
whereby the single instrument single target approach is replaced by multiple
instruments multiple targets approach. This would create headroom for a more
nuanced policy response in future, freeing it from the straight jacketed simplicity
of a 'hawkish' or 'dovish' stance based on unidirectional reading of inflation.
Expect rate stability ahead:
Going ahead, we expect inflation to fall sharply in
December 2013, as by most common accounts, vegetable prices have started
softening widely. The core inflation that has stayed stable so far, however, may
not slide rapidly and might continue to set a floor to policy easing. We expect no
further hikes in policy rates if inflation subsides and the INR remains stable.
Meanwhile, liquidity conditions have improved on forex flows and slower credit
growth, but should be more proactively eased when inflationary concerns subside
further. We also expect to wade through the tapering, as slow domestic recovery
and a more responsive monetary policy improve India's preparedness for global
events.
18 December 2013
3

E
CO
S
COPE
Data Monitor
Macro Economic Indicators
Annual
I. National Income (Growth %)
Nominal GDP (USDb)
Gross Domestic Product
Agriculture
Foodgrains (M Ton)
Rainfall (% of long period average)
Industry
Services
II. Inflation (Y-o-Y %)
WPI (Annual Averages)
All commodities
Primary articles
Fuel & power
Manufactured products
CPI-IW/CPI-RU (from FY12)
III. Fiscal Situtaion (as % of GDP)
Total receipts
Direct tax
Indirect tax
Net tax
Total expenditure
Plan
Non-plan
of which subsidies
Fiscal deficit
Revenue deficit
Combined fiscal deficit (centre + states)
Public debt
IV. Money and Banking (Y-o-Y%)
Reserve money
Money Supply (M3)
Deposits
Bank credit
V. External Sector
(in USDb)
Exports
Imports
Trade Deficit
Invisible Surplus
Current A/c deficit
Net capital flows
Forex Reserves
(As % of GDP)
Exports
Imports
Trade Deficit
Invisible Surplus
Current A/c deficit
External debt
VI. Financial Markets (Avg %)
Call rate
1-yr AAA corporate bond
Yield on 10-yr G-sec (%)
Exchange Rate (INR/USD)
BSE Sensex return
P/E ratio (Tralling)
Market capitalisation (as % of GDP)
Oil price (Indian Basket, USD/bbl)
Figures in red are estimates
FY01 FY02
475 494
4.3 5.5
0.0 6.0
197 213
0.0 -12.0
6.0 2.6
5.4 6.9
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
524 618
4.0 8.1
-6.6 9.0
175 213
-4.0 -20.0
7.2 7.3
7.0 8.1
721
7.0
0.2
198
5.0
9.8
8.1
834
9.5
5.1
209
-9.0
9.7
10.9
FY11
FY12
FY13 FY14E
1,840
5.0
1.9
250
-7.0
2.1
7.1
1,820
4.5
3.5
255
6.0
1.0
6.4
948 1,239 1,226 1,366 1,710 1,872
9.6
9.3
6.7
8.4
9.5
6.2
4.2
5.8
0.1
1.0
7.7
3.6
217 231 234 218 245 255
-1.0 -5.0 -1.0 -10.0 -19.0
2.0
12.2
9.7
4.4
8.4
9.9
3.5
10.1 10.3 10.0 10.5
9.8
8.2
7.1
2.9
28.4
3.2
3.8
3.6
3.6
9.0
1.9
4.3
3.4
3.3
5.5
2.7
4.0
5.5 6.5
4.3 3.7
6.4 10.1
5.6 6.3
3.9 3.8
4.4
2.9
9.5
3.1
4.4
14.3
4.5
5.4
7.3
13.7
3.8
9.9
1.3
4.0
2.5
6.5
79
17.2
21.2
23.4
38.0
6.5
9.6
6.5
5.6
6.7
13.6
5.4
5.7
8.2
13.6
4.0
9.6
1.3
3.3
1.9
5.4
75
23.7
21.3
23.8
28.1
4.8
8.3
0.0
4.9
6.2
14.3
6.3
5.6
8.8
14.3
4.1
10.2
1.4
2.5
1.1
4.1
71.4
31.0
21.4
22.4
22.3
8.0
11.1
11.6
6.1
9.1
15.8
6.0
4.9
7.9
15.8
4.9
10.9
2.3
6.0
4.5
8.5
72.2
6.4
19.3
19.9
17.5
3.6
12.7
-2.1
1.8
12.4
15.9
5.8
3.8
7.1
15.9
4.7
11.2
2.2
6.5
5.2
9.6
70.8
17.0
16.9
17.2
16.9
9.6
17.8
12.3
5.7
10.5
15.6
5.8
4.5
7.4
15.6
4.9
10.7
2.3
4.9
3.3
7.4
66.0
19.1
15.9
15.8
21.4
8.9
9.9
13.6
7.3
10.5
14.8
5.6
4.5
7.2
14.8
4.8
10.0
2.4
5.9
4.4
8.0
65.6
9.2
13.0
13.4
17.0
7.4
9.8
10.6
5.4
10.2
14.9
5.6
4.8
7.5
14.9
4.7
10.2
2.4
5.2
4.1
7.3
64.0
8.4
13.6
14.3
14.1
6.5
12.6
10.0
2.8
9.8
14.2
5.6
4.9
7.6
14.2
4.6
9.6
2.0
4.8
3.4
6.9
15.5 16.0
3.2 3.0
5.7 5.2
6.5 5.9
15.5 15.9
3.9 4.4
11.6 11.5
1.3 1.4
5.7 6.2
4.1 4.4
9.4 9.9
76
81
8.1
16.8
16.2
16.6
11.4
14.1
11.6
11.4
16.8 17.2 15.6
3.4 3.8 4.1
5.4 5.4 5.3
6.5 6.8 6.9
16.8 17.1 15.4
4.5 4.4 4.1
12.3 12.7 11.3
1.8 1.6 1.4
5.9 4.5 3.9
4.4 3.6 2.4
9.5 8.4 7.2
86
86
82
9.2
14.7
18.9
26.6
18.3
16.8
17.6
16.0
12.1
12.3
10.8
26.2
9.0
11.0
13.0
13.0
45
58
-12
10
-3
9
42
45
56
-12
15
3
9
54
54
64
-11
17
6
11
76
66
80
-14
28
14
17
113
85
119
-34
31
-2
28
142
105
157
-52
42
-10
25
152
12.6
18.8
-6.2
5.0
-1.2
17.3
5.6
6.7
7.1
44.3
73.7
21.6
81.8
55.7
129
191
-62
52
-10
45
199
13.6
20.1
-6.5
5.5
-1.0
18.2
166
258
-91
76
-16
107
310
13.4
20.8
-7.4
6.1
-1.3
18.1
189
309
-120
92
-28
7
252
15.5
25.4
-9.8
7.5
-2.3
20.5
182
301
-118
80
-38
53
279
13.2
21.8
-8.6
5.8
-2.8
18.9
3.2
5.9
7.2
47.4
80.5
21.0
95.2
69.6
251
381
-130
86
-44
57
305
310
500
-190
112
-78
68
294
307
502
-196
107
-88
89
293
16.3
26.7
-10.4
5.7
-4.7
21.4
8.0
8.2
9.3
54.4
8.2
15.9
63.4
108.3
316
467
-151
110
-41
40
290
17.4
25.7
-8.3
6.0
-2.3
23.2
8.5
9.5
8.0
60.6
16.0
59.4
107.5
9.9 9.3
12.6 11.7
-2.7 -2.4
2.1 3.1
-0.6 0.7
22.5 21.1
9.2
N.A.
10.9
45.6
-27.9
16.7
26.4
26.9
7.2
N.A.
8.8
47.6
-3.7
14.7
26.1
22.5
10.6 11.1 11.8
12.7 13.3 16.5
-2.1 -2.3 -4.7
3.4 4.6 4.3
1.2 2.3 -0.3
20.3 17.8 18.5
5.9
6.8
6.9
48.3
-12.1
11.2
22.6
26.7
4.6
5.1
5.4
45.9
83.4
16.0
42.3
28.0
4.7
5.5
6.2
44.9
16.1
14.4
52.4
39.2
14.5 16.8
22.1 27.0
-7.6 -10.3
5.0
6.0
-2.6 -4.2
17.3 18.7
4.5
8.0
8.1
9.6
7.9
8.4
45.6 47.9
10.9 -10.5
19.0 15.5
87.7 69.2
85.1 111.9
7.2
6.1
7.1
8.5
9.3
9.8
7.8
7.9
7.6
45.3 40.2 45.9
15.9 19.7 -37.9
18.2 18.8 11.8
82.5 103.0 54.8
62.4 79.5 82.7
18 December 2013
4

E
CO
S
COPE Data Monitor
Macro Economic Indicators
Quarterly
I. National Income (Growth %)
Gros s Domes ti c Product
Agri cul ture
Indus try
Servi ces
II. External Sector (USDb)
Exports
Imports
Tra de Defi ci t
Invi s i bl e Surpl us
Current A/c defi ci t
Net capi ta l fl ow
Forex Res erves
Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13
9.3
11.3
10.4
8.2
66
97
-31
21
-10
13
296
10.1
7.6
9.8
10.9
77
107
-30
24
-5
8
305
7.5
5.4
5.7
8.9
79
124
-45
28
-17
24
316
6.5
3.2
3.8
8.5
76
120
-43
25
-18
17
311
6.0
4.1
2.6
8.3
71
119
-48
28
-20
8
297
5.1
2.0
2.1
7.3
80
132
-52
30
-22
17
294
5.4
2.9
1.8
7.7
75
119
-44
27
-17
16
290
5.2
1.7
1.3
7.6
73
120
-48
27
-21
18
295
4.7
1.8
2.5
6.7
74
133
-58
27
-32
31
297
4.8
1.4
2.7
6.6
85
130
-46
28
-18
21
293
4.4
2.7
0.2
6.6
74
124
-50
29
-22
21
285
4.8
4.6
2.4
5.9
81
115
-33
28
-5
-5
276
Macro Economic Indicators
Monthly
Dec '12 Jan '13 Feb '13 Mar '13 Apr '13 May '13 Jun '13 Jul '13 Aug '13 Sep '13 Oct '13 Nov '13
I. Growth and inflation (Y-o-Y %)
IIP
-0.6
2.5
0.6
3.5
1.5
-2.5
-1.8
2.6
0.4
2.0
-1.8
WPI - Al l commodi ti es
7.3
7.3
7.3
5.7
4.8
4.6
5.2
5.9
7.0
7.0
7.0
7.5
Pri ma ry arti cl es
10.6
11.4
10.5
7.4
5.1
5.7
8.8
9.7
13.6
14.0
14.7
15.9
Fuel & power
10.3
9.3
10.6
7.8
8.3
7.3
7.5
11.4
12.7
11.7
10.3
11.1
Ma nufactured products
5.0
4.9
4.8
4.3
3.7
3.3
2.9
2.6
2.3
2.4
2.5
2.6
CPI-RU
10.6
10.8
10.9
10.4
9.4
9.3
9.9
9.6
9.5
9.8
10.1
11.2
II. Fiscal situation (as % of budgeted)
Tota l recei pts
60.0
66.1
78.3 101.1
0.7
3.3
10.6
16.1
23.3
35.4
41.3
of whi ch ta x revenue
62.8
68.5
77.1
99.9
0.4
3.1
11.5
16.4
22.7
34.8
40.3
Tota l expendi ture
66.5
74.5
85.2
98.5
6.1
13.1
23.0
31.3
37.9
48.6
55.4
Non-pl a n
71.7
82.0
86.5
99.4
6.9
13.4
24.1
33.5
43.0
51.6
58.9
Pl a n
56.8
60.7
82.3
96.5
4.5
12.3
20.7
27.0
28.4
42.5
48.3
Fi s ca l defi ci t
78.8
90.7
97.4
94.0
17.3
33.3
48.4
62.8
65.7
76.0
84.4
Revenue defi ci t
85.1 100.5
101.2
92.9
22.8
38.1
55.4
73.0
79.2
84.8
92.9
III. Money and Banking (Y-o-Y%)
Res erve money
4.6
4.2
7.5
6.2
7.6
6.0
7.1
6.6
7.4
7.7
8.0
12.2
Money Suppl y (M3)
11.8
11.4
11.0
11.9
10.9
8.8
9.2
9.5
9.3
9.7
11.7
13.1
Bank Credi t (Y-o-Y %)
15.1
16.0
16.3
14.1
14.6
14.1
13.7
14.9
17.1
17.9
16.6
14.2
Depos i ts (Y-o-Y %)
11.1
13.1
12.7
14.3
13.4
13.4
13.8
13.4
13.1
14.1
14.4
16.1
IV. External Sector
Exports (USD b)
25
26
26
31
24
24
24
25
26
27
27
25
Exports (Y-o-Y %)
0.0
0.0
0.0
9.2
-0.5
-3.3
-5.3
9.5
13.2
10.3
13.1
5.9
Imports (USD b)
43
46
41
41
42
45
36
38
37
34
38
34
Imports (Y-o-Y %)
0.1
0.1
0.0
-2.7
10.9
7.0
0.1
-6.6
-1.6 -18.8 -14.5 -16.4
Tra de Defi ci t (USD b)
-18
-20
-15
-10 -18.3 -20.7 -12.3 -12.6 -10.5
-6.7 -10.7
-9.2
Forex Res erves (USD b)
297
296
292
293
296
288
285
280
275
276
283
291
Rea l effecti ve excha nge rate
104.7 105.0
106.4 106.4 105.7 105.7
98.8
96.8
90.8
89.9
92.2
91.1
RBI's net forex i nterventi on
0.1
0.0
-0.3
0.8
0.5
-0.1
-2.3
-6.0
-2.5
-3.5
3.9
V. Financial Markets (Avg %)
Ca l l ra te
8.0
7.9
7.7
7.7
7.5
7.2
7.2
7.6
9.3
9.7
8.6
8.2
Govt borrowi ng (% compl eted)
89.5
93.7
100.0 100.0
7.7
20.5
28.3
38.5
52.1
59.8
67.5
80.3
91-day T-bi l l
8.2
8.0
8.0
8.1
7.8
7.4
7.4
8.7
11.3
10.5
8.9
8.9
Yi el d on 10-yr G-s ec (%)
8.1
7.9
7.8
7.9
7.8
7.5
7.5
8.0
8.5
8.5
8.6
9.0
SBI Bas e ra te
9.8
9.8
9.7
9.7
9.7
9.7
9.7
9.7
9.7
9.8
9.8
10.0
CP - 3 month
9.0
8.7
9.5
9.6
8.6
8.4
8.5
9.6
12.0
11.0
9.5
9.4
CD - 1yr
8.8
8.7
9.3
9.1
8.5
8.3
8.3
9.2
10.4
10.1
9.2
9.2
AAA corpora te - 1yr
8.9
8.9
8.9
9.0
8.8
8.4
8.7
9.2
11.0
10.9
9.6
9.7
Exchange Rate (INR/USD)
54.6
54.3
53.8
54.4
54.4
55.0
58.4
59.8
63.2
63.8
61.6
62.6
BSE Sens ex return
0.4
2.4
-5.2
-0.1
3.5
1.3
-1.8
-0.3
-3.8
4.1
9.2
-1.8
P/E ra ti o (1 Yea r Forwa rd)
15.3
15.6
14.7
14.5
14.9
14.9
14.4
14.2
13.5
13.8
14.9
14.5
Mkt ca pi ta l i za ti on (a s % of GDP)
68.9
69.9
65.0
63.4
65.8
66.4
63.5
61.9
59.5
63.0
67.9
67.7
Oi l (Indi a n ba s ket, USD/bbl )
107.1 109.5
113.1 106.8 102.1 101.2 101.3 104.9 108.2 109.7 107.6 106.7
18 December 2013
5

E
CO
S
COPE Data Monitor
Annual
GDP growth (%): Slows to decadal low of 5%
Quarterly/Monthly
GDP growth (%): Continuous slowdown for two years
Inflation: Showing signs of slow moderation
Inflation: WPI now above 7% and CPI in double digit
Fiscal deficit (% to GDP): Consolidation process started
Fiscal trend: Deficits rises in YTDFY14
Monetary indicators:
Credit growth constrained by slowdown and tight money
Monetary indicators:
Credit growth has slowed down sharply in recent past
18 December 2013
6

E
CO
S
COPE Data Monitor
Annual
External sector: Correcting sharply in FY14
Quarterly/Monthly
External sector: Exports pickup, deficit corrects
Financial markets: Rates are stable now while yield curve
is flat
Financial markets: The spike in interest rates has corrected
somewhat but remains high
See-saw ride of the equity market
Markets are fairly valued now
INR, forex reserves: INR volatile while forex depletes
RBI intervened to stabilize INR
18 December 2013
7

E
CO
S
COPE
Gallery
E
C
OS
C
O
PE
E
C
OS
C
O
PE
E
C
OS
C
O
PE
29 November 2013
14 November 2013
11 October 2013
November 2013
The Economy Observer
The Economy Observer
The Economy Observer
2QFY14 GDP growth at 4.8%
2QFY14 GDP growth at 4.8%; Growth
remained in the range of 4.4-4.8% for
fourth consecutive quarter
Agri 4.6%, industry 2.4% and services
5.9%, construction accelerates to
4.3%
Demand side GDP growth at 5.6%;
overtakes supply side first time in six
quarters
Pick up in exports and sporadic
investment revival responsible for
demand growth
1HFY14 growth at 4.6% vs. 5.3% in
1HFY13
WPI inflation
Oct-13 WPI inflation firms up to 7%
from 6.5% in Sept-13
MoM increase lower, YTD FY14
lower at 5.8% from 7.6% in YTD FY13
Food inflation remained high at
18.2% but premium food alone
explained 2.9% of the overall WPI
inflation of 7%
Fuel group inflation inched up purely
due to higher electricity prices, and
oil group inflation subsided on base
effect, lower oil price and INR
appreciation
Sep-13 IIP well below expectations
Capital goods and durables shave
2.6% off IIP
Mining showed first signs of recovery,
electricity at 22-month high
Manufacturing tepid, 13 of the 22
industries show positive growth
Basic goods accelerated but capital
goods wasted a huge favorable base
effect; intermediate remains positive
IIP recorded a growth of 0.4% in
1HFY14 -- a moderate improvement
over the decline of -0.7% in 1HFY13
Expect IIP to record 1% growth in
FY14, some pickup in 2H on exports
and investments
E
C
OS
C
O
PE
E
C
OS
C
O
PE
E
C
OS
C
O
PE
29 October 2013
14 October 2013
11 October 2013
October 2013
The Economy Observer
RBI's policy review
RBI lowers MSF/Bank rate by 25bp
However, it raised Repo/Reverse
Repo rate by 25bp
Enhanced the term Repo limit by 25bp
of NDTL, releasing another INR200b
of liquidity
FY14 GDP estimate cut to 5% from
5.5% earlier
No explicit WPI estimate but charts
seem to suggest 6.5% for Mar-14 from
5% estimated earlier
Provides cautionary guidance on CPI,
which would remain at 9%+ barring
policy actions
The Economy Observer
The Economy Observer
WPI inflation
Sep-13 WPI inflation firms up to 7-
month high of 6.5% from 6.1% in
Aug-13
Premium food explained 2.9% of the
overall WPI inflation of 6.5%
Food inflation remained very high
at 18.4%, much above 11.4% as per
CPI-food
Fuel group inflation eased absorbing
sharp rise in oil prices as well as
depreciation impact
Mfg and core inflation remained
around 2% level again absorbing the
impact of INR depreciation
Aug-13 IIP slows down
Aug-13 IIP shows recovery to 0.6%
Most sectors barring capital goods
and non-durables showed MoM
improvement
Mining degrowth nearly ended but
manufacturing stagnated again,
electricity remained a bright spot
Basic goods stayed positive but
capital goods seen sharp reversal,
intermediated quickened
Capital goods degrowth shaved off
27bp from IIP, durables another 110bp
Apr-Aug IIP showed near stagnation
at 0.1%; however, signs of moderate
recovery in investment emerged
16 September 2013
E
C
OS
C
O
PE
E
C
OS
C
O
PE
E
C
OS
C
O
PE
9 October 2013
20 September 2013
October/September 2013
The Economy Observer
Topsy-turvy INR
CAD expanded to 4.8% in FY13 from
1.3% in FY08
Post crisis capital flows fell short of
CAD; Capital flows fund upto 2.5% of
CAD on a sustainable basis
INR/REER mirrors overall BoP Ø
Depreciation and slowdown can self
correct CAD
Targeted commodity and country
intervention and focus on renewable
required
We expect INR to stabilize to 62/USD
for 2HFY14 and further to 60/USD in
FY15
The Economy Observer
RBI lowers the MSF/Bank rate by
75bp; However, it raised Repo/
Reverse Repo rate by 25bp
Also reduced daily CRR norm to 95%
of the requirement from 99% now
Flags the current measure as
"cautious unwinding of the
exceptional measures"
Clarified that the measures would
reduce the effective policy rate and
the cost of funds for banks
Expect further cut in MSF by 50bp in
end-October 2013 policy
The Economy Observer
RBI's policy review
WPI inflation
Aug-13 WPI inflation firms up to 6.1%
from 5.8% in Jul-13
Surprisingly, food inflation held
steady as per CPI basket with much
higher weight, while it spiked as per
WPI measure; Fuel group inflation
stayed at 11.3% despite spike in oil
price and INR depreciation
Manufacturing and core group
inflation fell to 1.9%, absorbing the
impact of 5.7% INR depreciation
While we expect RBI to ease some of
the liquidity tightening, the monetary
stance is getting difficult in the wake
of several challenges
8
18 December 2013

E
CO
S
COPE
Gallery
E
C
OS
C
O
PE
E
C
OS
C
O
PE
E
C
OS
C
O
PE
12 September 2013
31 August 2013
14 August 2013
September/August 2013
The Economy Observer
Jul-13 IIP recovers
Jul-13 IIP shows recovery to 2.6%
All
sectors
showed
MoM
improvement
Mining degrowth continued but
manufacturing turned around,
electricity too recovered sharply
Basic goods recovered from negative
growth
Sharp turnaround in capital goods
added 193bp to industrial growth
Intermediate goods showed positive
growth for fifth consecutive months
Expect RBI change tack and to ease
policy to support recovery
The Economy Observer
The Economy Observer
Jul-13 WPI inflation spikes to 5.8%
from 4.9% in Jun-13
Vegetables inflation jumped (47%),
food inflation spiked to 11.9%
Manufacturing inflation held steady
at 2.8%, the same as Jun-13
Core inflation at remains low at 2.4%;
thus impact of INR depreciation
absorbed
CPI-RU eased to 9.6%; but pressure
points in inflation remains
Expect RBI to harden stance and
formally shift to tighter money with
increase in repo rate
WPI inflation
1QFY14 GDP growth at 4.4%
Lowest GDP growth in 17 quarters,
marking four consecutive quarters
of slowdown
Agriculture: 2.7%, Industry: 0.2% and
Services: 6.6%
Demand-side GDP grew by 2.4%
Expect Agriculture to pick up and
Industry to receive moderate boost
from low base and exports, but
Services likely to slow further
Nominal GDP growth only 10%; 3%
INR depn reduces $ GDP gr. to 7%
Cutting FY14 GDP growth estimate
to 4.5% from 5.5% earlier
E
C
OS
C
O
PE
E
C
OS
C
O
PE
E
C
OS
C
O
PE
30 July 2013
15 July 2013
12 July 2013
July 2013
The Economy Observer
RBI's policy review
The Economy Observer
The Economy Observer
May-13 IIP shows a de-growth
(-1.6%) after four months.
All sectors, barring electricity,
showed MoM decline.
Mining de-growth deepened; 11 out
of 22 industry within manufacturing
showed a decline.
Basic goods showed negative growth
along with capital goods;
intermediate low growth.
Apr-May FY14 IIP shows near no-
growth at 0.1%; CMIE data shows
more projects being dropped than
added or revived.
12 June 2013
May-13 IIP contracts again
RBI leaves key policy rates and CRR
unchanged as expected
Keeps monetary projections
unchanged at 13% (M3), 14%
(deposits) and 15% (credit)
Stance altered to give external
stability top priority followed by
growth, inflation and liquidity
Guidance alludes to calibrated exit
from recent liquidity tightening on
INR stability
Efficacy of RBI measures in doubt as
INR hits 60/USD again
WPI inflation
Jun-13 WPI inflation at 4.9%
Inflation at sub-5% for 3 consecutive
months
Food and primary inflation
accelerated on vegetable price spike
Fuel inflation moderated despite INR
depreciation and increases in
regulated prices; Manufacturing
inflation eased further 2.8%
Core inflation at 42-m low of 2%
CPI-RU increased to 9.9%; core-retail
steady at 7.7%; Revise FY14 WPI
inflation estimate from 5% to 4%
Expect 25bp CRR cut by RBI (30 July)
E
C
OS
C
O
PE
E
C
OS
C
O
PE
E
C
OS
C
O
PE
27 June 2013
14 June 2013
June 2013
The Economy Observer
4QFY13 BoP
4QFY13 CAD corrects to USD21b
(3.6% of GDP); Exports rise, imports
lower, invisibles static; Capital flows
lower but match up to CAD
FY13 CAD at USD88b (4.8% of GDP)
Exports and invisibles decline,
imports static
Capital flows adequate for CAD and
leave a forex accretion of USD4b
Net international investment (NII)
position deteriorates to USD307b
Share of debt in NII increases to 52%
External debt rises to USD390b
(21.2% of GDP)
The Economy Observer
The Economy Observer
WPI inflation
May-13 WPI inflation falls to
43-month low of 4.7%
Thus, inflation remains below RBI's
comfort level for two months
CPI-RU too eased marginally to 9.3%
Food & primary inflation accelerated
on vegetables price spike; Fuel
inflation moderates as global oil
price decline absorbs diesel price
hike
Manufacturing inflation fell 3.1%,
core inflation at 40-mon low to 2.4%
Expect FY14 WPI inflation at 5%
Expect 25bp CRR cut on June 17
Apr-13 IIP decelerates to 2%
Apr-13 IIP decelerates to 2% despite
a low base
Most sectors within IIP decelerated,
barring consumer non-durables
Manufacturing in line, mining and
electricity disappoint
Basic goods reported positive growth,
while intermediate goods matched
MoM growth
Capital goods underperformed after
two months of near 9% growth
Consumer sector accelerated on 2-
digit gr. of non-durables; durables,
however, recorded a deep decline
9
18 December 2013

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