Watch for this week: Inflation, Sri Lanka crisis, Agnipath in SC

1. India inflation

India’s headline inflation data for June is to be released on Tuesday. Retail inflation cooled marginally in May from April’s eight-year high, but was still uncomfortably high at 7.04%. Most economists do not expect it to have shown any sign of slowing in June.

A Mint poll of 27 economists predicted that inflation will stay at 7% in June. In their latest report, economists at Barclays said that despite easing commodity and energy prices, India’s inflation will likely remain high in the near term. Retail inflation in India has breached the Reserve Bank of India’s upper tolerance band of 6% across all the months of this year.

Inflation has become a challenge around the world, and central banks are intensifying interest rate hikes to keep the trend in check. In India, monetary policy makers will be looking for inflation data to chart out further steps to take in their August meeting.

2. Sri Lanka crisis

The political crisis in Sri Lanka reached a climax over the weekend as thousands of angry protesters made their way into Colombo to overthrow the president and prime minister. Both leaders—Gotabaya Rajapaksa and Ranil Wickremesinghe—have agreed to resign after their homes were attacked. The chaos is a result of the country’s prolonged economic meltdown, which forced the government last month to suspend fuel sales, except for essential services like healthcare and food production. Foreign currency reserves are running low, and inflation has squeezed all life out of household budgets, even for essentials.

The coming week could see talks start to form an all-party government to return the country to stability. Once Rajapaksa goes on 13 July (he remains missing as of now), the process to elect a new president will also begin. Ships carrying cooking gas are arriving this week, and Rajapaksa has ordered officials to ensure smooth distribution among the public.

3. Agnipath in SC

The row over Agnipath is not abating. After violent protests in the streets, the government’s new defence recruitment scheme will face another challenge in the apex court this week. A vacation bench of the Supreme Court has agreed to list a plea by air force aspirants who sought a cancellation of Agnipath recruitment notification. The petitioners were shortlisted by the air force last year for the post of airmen but are awaiting enrolment, which has been delayed. They are challenging the government’s decision to announce a new recruitment scheme without completing the enrolment for an already-initiated process. Agnipath offers four-year contracts at non-officer levels, with only up to 25% moving on to long-term employment, against the current term of 10-15 years. The diminished job security is the reason behind the anger of aspirants.

4. HDFC Bank earnings

India’s biggest private lender, HDFC Bank, will announce its results for the June-ended quarter on Saturday. The performance in the March quarter was dull, declared after the big announcement of its merger with Housing Development Finance Corporation (HDFC). The net interest income (NII) grew at a modest 10.2%. In sequential terms, the growth was just 2.3%. The income growth for the June quarter would be impacted by high losses in treasury income that banks have suffered. However, strong loan growth would boost NII. HDFC Bank’s advances grew at 21.5%, whereas deposits grew at 19% on a year-on-year (y-o-y) basis. Kotak Institutional Equities estimates 15% y-o-y growth for its NII.

Interest rates for banks will soon rise on account of recent hikes in the repo rate. Banks in the near term may gain on the margin front, but this would taper once deposit rates catch up in a few quarters.

5. China GDP

China's gross domestic product (GDP) growth data for the June quarter will be released on Thursday. Economic growth in the world’s second-largest economy is likely to have slowed, due to a prolonged lockdown in Shanghai and other major cities under the country’s zero-covid policy, impacting its economic recovery. According to a Bloomberg survey of economists, the Chinese government will report GDP growth of about 1.5% from a year ago. It grew by 4.8% in the March quarter.

High-frequency indicators suggest that growth will be closer to a contraction, but experts believe Beijing will be hesitant to disclose a contraction as President Xi Jinping has urged officials to ensure that the economy achieves 5.5% annual growth this year.

Weaker growth would raise the urgency of additional stimulus. Policymakers will closely monitor June-quarter GDP data before assessing how much additional stimulus they can deliver in the second half of the year.