Weekly Economic Update

In the local economic news, India’s foreign exchange reserves increased US$ 689 million to US$ 584 billion for the week ended February 26. The core currency assets rose US$ 509 million to US$ 542 billion. The reserves, which have been increasing at a steady pace in the recent months, touched an all-time high for the week ending January 29, when they hit US$ 590 billion. Notably, gold reserves increased by US$ 172 million to US$ 35.42 billion during the period.  

In other news, the economy experienced additional inflationary pressures in February with a CPI inflation reading of 5.03 per cent in February compared to 4.06 per cent in January. Higher food prices were a key driver of inflation (increased 3.87 per cent during the month).  

As far as industrial production is concerned, the index of industrial production (IIP) contracted 1.6 per cent in January 2021 while manufacturing and mining sectors also contracted 2 per cent and 3.7 per cent, respectively. Power generation was a standout as it grew at a pace of 5.5 per cent in January.   

On the policy front, European Central Bank (ECB) has committed to increase the pace of its bond purchase programme to curtail the recent rise in yields. While the pandemic-related purchase programme will continue till March 2022, ECB’s signal on Thursday led to lower yields for the day. Some private analysts expect the bond-buying programme to be hiked to a monthly pace of Euro 80 billion from the current Euro 60 billion.   

In the US, President Joe Biden signed the US$ 1.9 trillion stimulus plan, which includes US$ 1,400 stimulus cheques for US residents. The signing of one of the largest COVID stimulus bills to date drove the benchmark S&P 500 to an all-time high during the week.