RBI in their policy announcement on Friday last week revised its projection for July-September CPI to 5.1% from the previous forecast of 5.9%. RBI also indicated that due to high rupee liquidity in the market, the need for undertaking further G-SAP operations at this juncture does not arise even though RBI would remain in readiness to undertake G-SAP as and when warranted by liquidity conditions while remaining flexible in conducting OMOs and Operation Twist (OT). As a result of the policy announcement, there is no major change in sovereign bond yields, rupee’s value against the dollar and any downside correction in local stocks.
For a second month in September, non-farm payrolls increased 194,000 after an upwardly revised 366,000 gain in August. The unemployment rate fell to 4.8%, while average hourly earnings jumped 0.6%. The jobs data being neutral, some of the market participants expect the Fed will look through the disappointment attributing it to temporary weakness due to covid and forged ahead with the taper announcement in November. The Fed may view the report as more positive overall than the headline payrolls number. The is currently trading at 94.13 and the 10-year US yield inched marginally higher and trading at a 4-month high of 1.6120%.
With more than half of the US FOMC numbers forecasting the first hike in interest rate happening by the end of next year. It seems that interest rates that have been anchored near zero over the past 18 months could move up sooner than expected to tackle rising inflation. On the positive side, Powell assured markets that there would be no interest rates hikes while the Fed is tapering with inflation currently elevated which would mean real interest rates should stay low till the end of 2022.
Fitch Ratings has cut India’s economic growth forecast to 8.7% for the current fiscal but raised the GDP growth projection for FY 2022-23 to 10% saying the second covid-19 wave delayed rather than derail the economic recovery. Fitch maintained its BBB- with a negative sovereign rating due to high public debt, a weak financial sector and some lagging structural factors.