Decide with Confidence Dun & Bradstreet's Economy Forecast

Key Economic Forecast
Real Economy: IIP growth has almost halved to average at 4.94% during H1 FY09 as compared to 9.49% during H1 FY08,
indicating moderation in the growth momentum during the current fiscal. High interest rates coupled with high
input costs seems to have weighed down industrial production during the first half of the current fiscal. Going
forward, subdued demand conditions in the domestic markets coupled with moderating exports growth due to
slowdown in the world economy are likely to have adverse impact on the domestic industrial production. Thus
D&B expects to have grown within the range during Oct-08.
Price Scenario: With a sharp fall in global crude oil prices, inflation in aviation turbine fuel, naphtha and furnace oil (which are
not administered) witnessed significant slowdown, in turn, their contribution to the headline inflation dropping
to 4.43% during Oct-08 as against 6.02% during Sep-08. Further, the latest data release for inflation reveals
that inflation in fuel group declined by 3.4% (w-o-w) for the week ended 01-Nov-08. D&B expects inflation
to average between during Nov-08.
Money & Finance: The recent liquidity measures announced by the RBI have helped to ease liquidity conditions in the domestic
financial markets, as is evident from the decline in call rates. Nonetheless, given the sustained FII outflows
from the domestic equity markets and the RBI intervention in the forex market through sale of US Dollars,
liquidity is likely to come under pressure once again in the coming weeks. D&B therefore expects further cut in
the CRR and repo rate by 50 basis points each in the near future, which will lead to further reduction in short
term interest rates. D&B expects to average at around during Nov-08.
External Sector: The turmoil in the global financial markets and the resultant FIIs outflow led the rupee to depreciate as much
as 6.7% between 1-Oct-08 to 27-Oct-08. However, FII inflows in the domestic equity markets and sale of US
Dollars by exporters during the first week of November provided some respite to the rupee. The rupee stood at
47.59 per US Dollar on 11-Nov-08, a gain of Rs 2.5 as compared to 27-Oct-08. Nonetheless, given the
volatility in the domestic stock markets and FII flows, D&B expects the to be in range of to a
US$ during Nov-08.
IIP 2.5-3.5%
15-91 day T-Bills yields 6.8-7.0%
rupee 48.00-48.40
High input costs coupled with the rising interest rates have adversely impacted the growth momentum during the first half of the
current fiscal as is evident from the slowdown in IIP growth to 4.94% during H1 FY09 as compared to 9.49% during H1 FY08. In an
endeavour to support the growth momentum of the domestic economy and restore financial stability amidst turmoil in the global
financial markets and the consequent liquidity crunch in the domestic financial system, the RBI announced a slew of measures
which include cut in the CRR, repo rate and SLR.
“The recent cut in the policy rates have reduced the cost of borrowing for banks which they are likely to pass on to their customers in
terms of lower PLR. This might provide some required impetus to the investment activity and stimulate demand in the long run”
stated Mr Kaushal Sampat, COO, Dun & Bradstreet India. “However, the current slump in the exports demand and subdued
domestic demand conditions coupled with credit crunch faced by the corporates will adversely impact the industrial production in the
near future. We therefore expect IIP growth to moderate and remain close to 5.1% during FY09.”
Mr. Sampat further stated, “Given the increasing downside risks to the growth momentum coupled with the tight liquidity conditions
we expect RBI to cut the CRR and repo rate by 50 basis points each in the near future.”
D&B expects RBI to cut Policy Rates in the near future
Latest Period Previous Month
Inflation (W.P.I) 8.80%-9.10%(Nov-08) 10.98%(Oct-08) 12.02%(Sept-08)
IIP Growth 2.50%-3.50%(Oct-08) 4.80%(Sep-08) 1.42%(Aug-08)
15-91-day T-Bills 6.8%-7.0%(Nov-08) 7.52%(Oct-08) 8.62%(Sept-08)
INR/US$ 48.00-48.40(Nov-08) 48.64(Oct-08) 45.56(Sept-08)
Dun & Bradstreet's Macro Economy Forecasts
All figures are monthly averages
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