Making Sense

 Fx Data As on 30 Sep 22, India Fx reserves declined to $ 533 bn from a peak of $ 642 bn ( Oct 21), a decline of $ 109 bn.  RBI Sep Spot intervention was to the tune of $ 33 bn. RBI's forward book is not part of the Fx reserves. Hence, it could be inferred that the decline in Fx reserves to the tune of $ 33 bn was on account of intervention and the balance $ 76 bn was on account of valuation swings. The above ties in when the RBI Governor had said in September that 67% of the drop in forex reserves was on account of valuation swings.  Looking at the forward book, RBI Sep forward intervention was to the tune of $ 10 bn. FYTD Sep, forward book intervention stands at $ 55 bn and outstanding RBI forward book now stands at $ 10 bn.  FYTD Sep, RBI intervention stands at $ 89 bn. 

 India Oct trade deficit data came in at $ 26.91 bn. FY 22 - 23 till Oct came in at $ 183 bn.  Exports peaked in the first quarter of FY 22 - 23 and have steadily declined in line with a subdued global outlook. Exports contracted 9% mom to $ 29.78 bn while imports contracted 4% to $ 56.69 bn. Fall in exports was largely driven by  cotton yarn/handloom, gems and jewellery exports, and engineering goods. The Oct estimated services surplus came in at $ 12.28 bn and trade balance therefore stands at $ 14.63 bn. 

 Hello everyone !! India CPI and WPI data release shows CPI easing to 6.77 % (prior 7.41%) and WPI easing to 8.39% ( prior 10.70%). The CPI release looks in line with RBI's delineated path with 6.50% print for Q3 but the Q4 prints could average 6.05% according to my estimates and inflation could ease below 5% from start of next fiscal year on higher base effects.   We continue to be watchful of rise in cereal prices. Decline in paddy acreage due to unseasonal rains, elevated wheat prices alongside lower stocks government warehouses (50% less than last year) continue to pose risk to inflation outlook. Sowing for the rabi season has been encouraging which could bode well for the inflation trajectory to evolve along expected lines.  Liquidity is in small surplus with liquidity absorption at Inr 66K crore and call rates trading closer to the repo rate at 5.90% and daily Cash tom points falling to 0.50 ps. Benign liquidity conditions and easing inflation favor the receive...

 Release of the US CPI print was the single most important event for financial markets. Yesterday's release showed moderation with headline print at 7.70% yoy (prior 8.20%), 0.40% mom (prior 0.40%) and Core CPI at 6.30% (prior 6.60%).  The data release confirmed few narratives. The June print of 9.1% CPI marked the peak in inflation and FOMC will slow the pace of rate hikes. Market is now pricing in the terminal rate at 4.92%. Post the FOMC , mkt had priced in a peak terminal rate of 5.25%. Interestingly, there has been extensive talk on the Shelter component of US CPI which measures rental values / imputed rent (owners' equivalent rent) and lodging away from home. Though the shelter component rose 0.80% mom, the sticky OER component rose 0.60% (prior 0.80%) which is a welcome sign. The markets went into a frenzy mode or may be long liquidation mode. USD fell across the board, bonds rose and equities rose. Also aiding the sentiment was China adjusting protocols for covid contr...

Market estimate of Oct inflation as per Reuters poll is 6.73% with estimates ranging between 6.40% - 7.35%. My own estimates show the inflation print to be 6.60% based on average mom trend over the last decade. A print of 6.56% will be considered benign. A print lower than 6.70% will suggest inflation to evolve along RBI suggested rate trajectory with Q3 averaging 6.50% and then decline by March below the 6.00% level. My concern emanates from a print closer to 7% where RBI would be forced to raise rates by 50 bps in December meeting and the market would be quick to price terminal rate at 7% instead of the current 6.75%.  Considering no commodity shock and lower inflation on seasonality trends , interest rate markets have shown receiving interest over the last month.  We keep a close eye on CPI inflation data to see if more hawkishness needs to be built in to the price. Remember,  I have been mentioning that more hawkishness will be a function of how usdinr behaves as abse...