Whole sale prices in India, deflated to record low to -2.33% against average expectation of 2.1%. Consumer price index dropped 5.17%, down from 11% about a year ago.
- Fastest drop in inflation moved Reserve bank of India (RBI) to cut rates twice already this year, each worth 25 basis points. Further cuts might be on radar given the sizable drop in inflation.
- Since last year, with new government in power India’s benchmark 10 year yield has eased close to 120 basis points as investors remain optimistic on India.
- Indian rupee has performed well, down about 1% against dollar YTD, however up 3.6% in last 12 months.
Nevertheless this fast paced drop in inflation, exposes a weak spot in India’s dazzling economy.
- Most of the fall in inflation is due to drop in oil price, which India is heavily dependent on and imports most of the country’s demand.
- Government must come out to tackle India’s over dependence on oil price. Most of countries transports and material deliveries are heavily dependent on oil prices.
India remains a shining star this year among developing market peers and the country’s stock market would keep benefiting from that over longer horizon.
The material has been provided by InstaForex Company – www.instaforex.com