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Macroscope: RBI Monetary Policy Update Aug’20

RBI monetary poilcy

MPC Recap till date

RBI

MPC Reading – July 2020

What is the latest reading?

RBI

Growth & inflation outlook projection:

Growth: For the first half of the year, RBI expects GDP growth to be contraction zone and real GDP growth to be negative for the year 2020-21. This is on the back of negative consumer confidence in July, weak external demand, and contraction in global trade.

Inflation: Food inflation has been elevated since the pandemic outbreak. Headline inflation is expected to continue at elevate levels through Q2FY2020-21. Supply chain disruptions continue as re-clamping of lockdown in a fragmented manner continues to add pressure. Inflationary pressure also evident across segments.

Other Highlight:

Liquidity reported as essential for effective transmission of rate cuts. Incremental focus on liquidity support for financial markets, improved credit flow, digital payments and leveraging technology. Liquidity measures include INR 10KCr. Liquidity to NABARD & NHB, provisioning to allow stressed MSMEs to restructure debt, Gold loan LTV enhanced to 90% of value

Key takeaways:

As signs of revival defer and the pandemic is yet to taper significantly, the Central Bank may want to have enough rate headroom as dry powder and err on the side of caution. Improved statistics on containment efforts of the pandemic may nudge the Real GDP situation into the positive trajectory soon. RBI is being judicious with the use of monetary tools which seems like a good idea as world economies continue to stare into the fog.

 

Macroscope: Manufacturing PMI Update August 2020

PMI

What is Manufacturing Purchasing Manager’s Index (PMI)?

The Manufacturing PMI is a performance measurement of the manufacturing & services sector, derived from a 500 manufacturing companies’ survey. It aids in gauging business activity and confidence levels.

Its weighted components are as follows:

details PMI

It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.

How to read the PMI data?

– >50 figures indicate an expansion of the manufacturing sector compared to the previous month.
– <50 indicates a contraction.
– =50 indicates no change

What does PMI data mean for Financial Markets?

It serves as an indicator of corporate earnings, thereby, influencing equity & debt investors, alike. It is also a good parameter to compare attractiveness of an economy vis-a-vis another competing economy.

PMI Reading – July 2020

What is the latest reading?

The PMI figure in July 2020 stands at 46, compared with 47.2 in June

PMI data

PMI

Virus cases still rising and even the lockdown across multiple states, which indicates that the long road back to normality for the manufacturing sector.