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World Economy

OPEC Monthly Oil Market Report – August 2017

21

Graph 3 - 16: Indian GDP growth

Graph 3 - 17: Indian inflation vs. Repo rate

India’s

CPI inflation

increased 1.54% y-o-y in June 2017, slowing sharply from a 2.18% rise in May and

below market expectations of 1.7%. The inflation rate fell to a fresh record low for the third month as food

prices declined faster amid a favourable monsoon. The Wholesale Price Index (WPI) rose 0.9% y-o-y in June

of 2017, compared to a 2.17% rise in May and below market estimates of a 1.6% rise. It was the lowest WPI

inflation since July of 2016, as the cost of manufactured products and fuel went up at a slower pace and food

prices fell further. On a monthly basis, WPI decreased by 0.1%, after falling 0.4% in a month earlier. In May

2017, the government revised the base year to 2011–12 from 2004–05, aiming to align it with the base year

of other indicators like the GDP and the industrial production index.

After a 10-month pause, the Monetary Policy Committee of the Reserve Bank of India (RBI) has lowered the

leading repurchase rate by 25 basis points to 6.0%. Consequently, the reverse repo rate was adjusted to

5.75% and the marginal standing facility rate to 6.25%.The decision to cut interest rates in an environment of

volatile financial markets and gradually rising interest rates in the United States was mainly driven by the

sudden and abrupt easing of inflation since April. This pushed real interest rates in June to their highest

levels since November 2014. The RBI's latest rate cut is justified given the above developments, but it is

unlikely to significantly boost credit and growth. Despite the rate cut, the Indian economy continues to show

further signs of easing amid sluggish private consumption and falling investment, dragged down by ongoing

deleveraging in the banking and corporate sector, and further weakened by the double shock to consumers

and businesses from the government's demonetisation last year and the new GST roll-out in July.

Graph 3 - 18: Indian trade balance

6.1

7.1

7.5

7.9

4

5

6

7

8

9

10

1Q 14

2Q 14

3Q 14

4Q 14

1Q 15

2Q 15

3Q 15

4Q 15

1Q 16

2Q 16

3Q 16

4Q 16

1Q17

Sources: National Informatics Centre (NIC) and

Haver Analytics.

% change y-o-y

6.0

0

2

4

6

8

Aug 16

Sep 16

Oct 16

Nov 16

Dec 16

Jan 17

Feb 17

Mar 17

Apr 17

May 17

Jun 17

Jul 17

Aug 17

%

Repo rate

Consumer price index (CPI)

CPI lower target bond

CPI higher target bond

Wholesale price index (WPI)

WPI confort zone

Sources: Ministry of Commerce and Industry, Reserve Bank of

India and Haver Analytics.

23.6

-36.5

-13.0

-50

-40

-30

-20

-10

0

10

20

30

Jun 15

Jul 15

Aug 15

Sep 15

Oct 15

Nov 15

Dec 15

Jan 16

Feb 16

Mar 16

Apr 16

May 16

Jun 16

Jul 16

Aug 16

Sep 16

Oct 16

Nov 16

Dec 16

Jan 17

Feb 17

Mar 17

Apr 17

May 17

Jun 17

US$ bn

Exports

Imports

Trade balance

Sources: Ministry of Commerce and Industry and Haver Analytics.