India Macro Weekly: RBI has a new governor, WPI inflation at 2 year high

For the week ended August 20, 2016:
  • The highlight development during the week was the announcement of Urjit Patel as the 24th RBI governor after Raghuram Rajan announced his departure from the position in June 2016. Patel headed the committee, which recommended the new monetary policy framework. His appointment comes at a time when inflation has been rising above the RBI comfort limit.  Besides effective inflation management, ensuring continuity in banking sector reforms, including financial innovation and NPA management will be key to Patel’s mandate.
  • On the data front, inflation based on the Wholesale Price Index (WPI) touched a two year high of 3.5% on a year on year (yoy) basis in July 2016, in tandem with a buildup in CPI inflation as well. However, a weak base, particularly with respect to food prices has a role to play in this phenomenon.
  • On the real activity front, numbers on travel and tourism industry are encouraging.  Foreign tourist arrivals and foreign exchange earnings showed robust growth in July 2016, as did domestic airlines’ traffic during the month.
  • Area under Kharif crop continued to increase, most appreciably under pulses.
  • The exchange rate depreciated against major currencies, though, on average movement against the British pound was soft compared with the Euro.
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