Weekly Economic Update

In the local economic news, the analysis of January industrial production data throws up a few interesting insights. When looking at the end use of products produced, primary goods (mining, electricity, fuels and fertilisers) as well as intermediate goods (yarns, chemicals, semi-finished steel items, etc.) along with infrastructure goods (paints, cement, cables, etc.) grew at positive rates of 0.2 per cent, 0.5 per cent, and 0.3 per cent, respectively, indicating resilience in select sectors. The main negative was the 6.8 per cent decline in consumer non-durables during the month. Clearly, the economy may not experience higher growth till the start of FY22 (i.e. April 2021).  

On the local policy front, it appears that RBI’s recommendation of a continuation of the current flexible inflation targeting (FIT) regime will be approved by the government. While there has been no formal communication on this, sources within the government indicate that it is in favour of RBI’s recommendations.  In other comments, the government is likely to provide a window of six months for the holders of cryptocurrency to exit their holdings, after which, it will be banned from investment/trading.  

US Federal Reserve Chairman Jerome Powell reaffirmed that short-term interest rates would be maintained at their current level of 0-0.25 per cent along with its bond-buying programme (QE) at its current pace of US $120 billion. The bank raised its 2021 growth forecast to 6.5 per cent from an earlier estimate of 4.2 per cent. Most importantly, it also increased its core inflation forecast to 2.2 per cent for 2021, before expecting it to ease to 2 per cent next year. While the long-term bond yields declined on the day of the policy announcement, the benchmark 10-year bond yield rose above 1.7 per cent on Thursday, driving a sell-off in the stock market.