RBI to pursue wait-and-watch policy in policy review: D&B

Key Economic Forecast

Real Economy: In line with D&B's expectations, the IIP clocked a growth of 15.07% (y-o-y) during Feb-10 backed by double digit growth in manufacturing as well as mining & quarrying sector. Though IIP is expected to remain strong, it is likely to recede from the current high levels as the low base effect, which has been one of the reasons for the recent high growth, will begin to wane from July 2010. D&B expects IIP to have grown by 11.5%-12.5% during Mar-10.

Price Scenario: The second round impact of soaring primary food articles inflation on the prices of manufactured products is increasingly becoming evident since the last two months. To add to this, fuel group inflation has inched up significantly due to rising global oil prices and low statistical base. D&B expects the WPI inflation to be around 10.0%-10.3% during Apr-10.

Money & Finance: Credit demand has gathered pace during the recent period on the back of improving investment and consumption demand in the economy. Non-food credit growth has picked up momentum breaching the RBI's expectations of 16% by end-March 10. D&B expects 15-91 day T-Bill yield to average at around 4.0%-4.2% and ten-year G-sec yield to average at around 7.7%-7.9% during Apr-10.

External Sector: During Feb 10, exports and imports registered robust growth of 34.75% (y-o-y) and 66.36% respectively. The current trend in rupee appreciation on the back of weakness in dollar and FII inflows is affecting the competitiveness of exporters, especially the small exporters who find it difficult to manage the currency risks due to heightened volatility. D&B expects the rupee to appreciate from the current level and average at around 44.60-44.80 per US$ during Apr-10, supported by strong domestic fundamentals and foreign fund inflows.