D&B Economy Observer: Economy forecast for the month of October

Concerns over pace of recovery have deepened

Real Economy: With ‘Unlock 4.0’ from September, the pace of contraction in the Index of Industrial Production (IIP) is expected to reduce further. The pent-up demand and re-start of small businesses and street vendors along with medium and large firms is likely to drive demand for industrial goods. The index is expected to rebound to the positive territory from the month of October. However, in the meantime, Dun & Bradstreet expects IIP to have fallen by (-) 4% - (-) 3% during August 2020.

Price Scenario: Inflationary pressures continued to prevail in the month of September as the pent-up demand is expected to keep the prices elevated. Even as inflation for food articles has abated under the Consumer Price Index (CPI), certain categories of food articles such as pulses, vegetables, egg, meat and fish products under Wholesale Price Index (WPI) continue to be high. Dun & Bradstreet expects the CPI inflation to be in the range of 6.3% - 6.5% and WPI inflation to be in the range of 0.7% - 0.9% during September 2020.

Money & Finance: The Reserve Bank of India (RBI) announced several measures including special open market operation and measures to reduce the cost of funds for the banks to keep the yields from inching up sharply, as this would hinder monetary policy transmission. Also, the RBI’s indication on its intent to take necessary measures to keep yields low is expected to prevent further rise in the bond yields across the curve, even as inflation and government borrowing remains high. Dun & Bradstreet expects 15-91-day Treasury-Bill yield to average at around 3.1%-3.2% and 10-year G-Sec yield at around 6.0%-6.15% during September 2020.

External Sector: Foreign Institutional Investment (FII) inflows, RBI’s measures to infuse liquidity in the system, hopes of a vaccine and increase in the forex levels will cause rupee to appreciate in September from the levels recorded in August. Dun & Bradstreet expects the rupee to remain at around 73.2-73.4 per US$ during September 2020.