RIYADH: India’s worst period of macro instability is possibly over, and both consumer inflation and trade deficit are expected to moderate albeit gradually, Morgan Stanley said.
“Global commodity prices were largely steady last month, with the exception of oil prices which continued to decline,” Upasana Chachra, chief India economist at Morgan Stanley, said in the note on Wednesday.
“We believe the worst of macro instability is behind us now, though moderation in inflation and narrowing of India’s trade deficit will be gradual.”
The note pointed out that the indexes measuring global commodity prices, food prices and metal prices had stabilized in August and were down 9 percent, 25 percent from their peak. Oil prices, meanwhile, had declined 8 percent month-on-month.
Chachra reckons India’s consumer inflation rate will rise to between 7 percent and 7.2 percent in August and remain at 7 percent in September, before moderating gradually.
The inflation rate has remained above the Reserve Bank of India’s tolerance band for seven straight months.
The research house reckons India’s trade deficit likely peaked at $30 billion in July. The record trade deficit has prompted economists to revise India’s current account deficit and balance of payments projections.
“We believe that lower commodity prices and a partial rollback of taxes on petroleum products will help improve the trade balance trend,” Chachra said.
Indian rupee falls
The Indian rupee was trading lower against the dollar on Thursday, tracking a Chinese yuan-led decline in Asian currencies.
The rupee was trading at 79.6575 per US dollar by 0524 GMT, down from 79.4450 in the previous session. The local currency opened at 79.60.
India may delay coal plant closures
The Indian government is eyeing to delay the closure of coal plants and is even planning to open more, a move that will potentially stall efforts to hit climate goals, according to a Bloomberg report.
According to the report, Indian authorities are considering a proposal to shutter less than 5 GW of existing capacity by the end of the decade as the country is facing rising demand for electricity amid a global shortage. In 2020, India decided to shutter about 25 GW by 2030.
(With input from Reuters)