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Numbers to watch this week: Credit growth in India, rate decisions in US, UK

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REUTERS

India’s fortnightly credit data will be closely tracked this week, along with interest rate decisions by the central banks of the US, UK and Brazil amid inflationary pressures. The flash US PMI numbers will give a sense of the impact of the Delta variant and adverse weather events on manufacturing and services activity in September

Every Monday, Mint’s Plain Facts section features key data releases and announcements to watch out for in the coming week. India’s central bank will release credit growth data this week, which will show the extent to which lending has picked up with recovering economic activity. Interest rate decisions in the US, UK, and Brazil will be keenly watched as central banks around the world fret over inflationary pressures. Here are the key releases to watch out for in next seven days:

1. India credit growth

The Reserve Bank of India will on Friday release data on credit and deposits of commercial banks for the fortnight ended 10 September. There has been improvement since July, but credit offtake is still way below pre-covid levels and stuck in the slow lane, rising only 6.7% year-on-year during the fortnight ended 27 August.

The growth has largely been from agricultural activities and personal loans. Industrial credit growth crawled back into the positive territory in July, but was a paltry 1% despite a quick revival in economic activity. The trend is unlikely to change markedly in the near term. Some parts of the economy have reached pre-pandemic levels, but industries are facing supply-side hindrance in production.

However, as recovery takes hold, economists expect credit offtake to gather steam. The upcoming festival season in particular may lead to the beginning of demand revival and this in turn could power an improvement in credit growth.

 

2. US Fed meet

The US Federal Open Market Committee will announce its monetary policy decision on Wednesday. Inflation is still sky-high, but a steady print of 5.3% in August has eased the US Federal Reserve’s challenge and should provide policymakers some headroom.

A turn of events on the economy front may also support the Fed’s dovish stance as jobs data for August proved to be a disappointment. The resurgence in covid-19 cases has impacted the growth trajectory and so has the state of emergency declared by several states because of Hurricane Ida and Tropical Storm Nicholas. Until recently, analysts expected the Fed to announce a timeline for stimulus tapering this week. However, signs of peaking inflation and a slowdown in recovery have changed opinions. Any such announcement is likely to now get delayed. The uncertainty over which way the Fed will go is likely to keep the emerging markets anxious. 

 

3. US PMI

A flash reading of the US purchasing managers’ index (PMI) for September will be released on Thursday. There was a healthy spurt till May, but the growth momentum is now showing signs of having hit a peak. The composite PMI fell to an eight-month low of 55.4 in August. Manufacturing and services expanded robustly, but at a reduced pace because of raw material shortages and the renewed covid surge.

The slowdown is likely to have continued in September because of the economic impact of the Delta variant. Gains made in the aviation and hospitality sectors are on the verge of getting reversed.

Continued supply bottlenecks and inflationary pressures could also weigh on activity in September. However, PMI is expected to remain above the 50 mark that separates contraction from expansion.

 

4. UK policy rate

The Bank of England (BoE) will announce its sixth monetary policy decision for the year on Thursday. The meeting comes against the backdrop of a surge in the retail inflation rate to a nine-year high of 3.2% in August, after a marginal dip in July.

Some economists warn that inflation needs quick policy action, as it could reach double BoE’s 2% target by the year-end before it eases. However, the central bank may be more concerned about the slowing economic recovery, as BoE governor Andrew Bailey hinted earlier this month. In July, fresh covid-19 cases had slowed the monthly gross domestic product growth to just 0.1% despite an end to most restrictions.

Bailey has cited supply chain disruptions and persisting labour shortages for the slowdown, but said he expected supply bottlenecks to “sort themselves out". The remarks suggest BoE may choose a wait-and-watch approach to support recovery before it considers tightening interest rates.

 

5. Brazil’s policy rate

Brazil is seeing a continued rise in its retail inflation though its central bank became one of the first in the world to withdraw policy stimulus earlier this year. The inflation rate rose from 8.99% in July to 9.68% in August because of higher food and fuel prices. This will be a cause of concern for the rate-setting panel, Copom, when it announces its monetary policy on Wednesday.

The committee has already raised the benchmark Selic rate four times since March. Yet, the August inflation figure is the highest print in 21 years and more than three times the target set by the central bank. A depreciating currency, drought, and rising international prices of commodities, among other factors, are likely to continue to put upward pressures on prices.

Analysts expect the inflationary pressures to force the Copom to raise Selic by another 100 basis points even as the economy is still at a nascent recovery stage. 

 

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