The bond markets are taking a breather now: US bond yields have cooled from 1.61 percent to 1.58 percent. The dollar index has cooled off from 94.5 to closer to 94. Indian markets have seen similar trends as the rupee cooled to 75.25 from 75.5 on Tuesday. Indian bond yields – which were at 6.34 have cooled to 6.31.
The prime reason being healthy macroeconomic numbers like inflation numbers that were released Tuesday. In September, inflation stood at 4.35 percent compared to market expectations of 4.5 percent.
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank and Bhaskar Panda, the Executive Vice President and Head Overseas Treasury in HDFC Bank shared their perspectives.
“Despite energy prices catching up, the next consumer price index (CPI) reading as of now is appearing to be lower than 4 percent. We have a number closer to 3.75 percent or so,” said Bhardwaj. However, how the food prices pan out for the rest of the month remains to be seen.
“There have been some untimely rains and crop disruption. We have seen some impact of that in some parts but not much on the food side. Food prices in the near-term do not post risk,” she said. She expects to see degrowth on the food inflation side in the next two months.
According to Bhardwaj, the bigger worry is on the core inflation side as it continues to remain sticky. “Hence when I look at the dynamics, all the increasing uncertainty with regards to global or domestic factors, we do expect the pass-through to happen over subsequent months,” she stated.
Consequently, Kotak Mahindra Bank has revised next year's average inflation by 20 basis points (bps) to 5.1 percent, against 4.9 percent estimated earlier, she said.
The International Monetary Fund (IMF) retained India’s growth outlook for both the current and the next fiscal. It pegs India’s real gross domestic product (GDP) growth at 9.5 percent for FY22, at 8.5 percent for FY23 and at 6.1 percent by FY27.
Kotak Mahindra Bank, on the other hand, estimates India's GDP growth rate at 9 percent. “We are at 9 percent, so we are already lower than Reserve Bank of India’s (RBI) estimates or IMF’s estimates," Bhardwaj said.
About a month ago, Kotak Mahindra Bank was on the verge of upwardly revising our estimates as activity indicators suggested a reasonably decent upmove. "But now with increasing risks, we are back at 9 percent. So the risks are on the downside to 9.5 percent,” she said.
For the entire discussion between Bhardwaj and Panda with CNBC-TV18, watch the accompanying video.
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