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MSOL: ECOSCOPE-Macro data better than expected-No rate hike likely in Dec’19

ECOSCOPE: Macro data better than expected; No rate hike likely in Dec’19, but Feb’19 not a done deal yet

 

• India's headline CPI inflation inched up to 3.8% in Sep'18 from 3.7% in the previous month. The number was lower than our estimate of 4.1% and market consensus of 4%. This was the fourth straight month of lower-than-expected headline inflation.
• Although food inflation rose marginally to 0.5% YoY from 0.3% in Aug'18, it was well below our estimate of 1.2%. Core inflation also eased marginally to a five-month low of 5.9%, in line with our estimate.
• Separately, IIP growth slowed down to 4.3% YoY in August from 6.6% in Jul'18, but was higher than our/market expectation of 3.9%/3.8%. Slower growth in manufacturing and consumer durable output led to the slowdown in IIP. 
• According to our projections, CPI inflation will remain under 4% until Dec'18, which gives the RBI no reason to hike rates in the Dec'18 policy meeting. However, we believe that fiscal slippage may prompt the RBI to hike rates in the Feb'18 meeting. Nevertheless, it is not a done deal yet.