Highlights from the RBI's July 2023 bulletin

A few interesting finds and trends from the RBI’s July 2023 bulletin

The global composite Purchasing Managers’ Index (PMI) moderated to 52 in June 2023, with the services PMI indicating expansion while the manufacturing PMI contracted to a 6-month low of 48.8 due to reduced new orders. Global supply chain pressures showed a slight increase in June, as the global supply chain pressure index (GSCPI) rose after five months of decline.

Global Commodity Trends and Price Movements:

  • Global commodity prices showed an initial uptick in the first half of June 2023, followed by a subsequent correction.
  • The Food and Agriculture Organization reported a 1.4% monthly decline in food prices in June 2023, due to lower prices of vegetable oils, cereals, sugar, and dairy.
  • Crude oil prices hovered around $75 per barrel in June and $77 per barrel in early July due to decreased demand and Saudi Arabia’s extended supply cut.
  • The US Energy Information Administration lowered its global oil production forecast till 2024 due to OPEC+ production cuts, potentially leading to higher prices.
  • Gold prices declined for the third consecutive month in June due to decreased central bank purchases and a slump in retail demand caused by high prices and seasonal factors.

Global Inflation Trends:

  • Euro area inflation moderates to 5.5% in June 2023, the lowest since January 2022.
  • US annual CPI inflation sharply declines to 3.0% in June, the lowest since March 2021.
  • UK CPI inflation remains steady at 8.7%, while Japan’s CPI inflation declines to 3.2%.
  • Inflation in EMEs moderates, except for South Africa; BRICS countries record inflation below 5%.
  • Cooling core and services inflation was observed globally, except in the UK and EU.

Global Financial Markets React to Hawkish Signals and Inflation Data

  • Global financial markets, particularly in advanced economies (AEs), gained momentum in early June but became rangebound after hawkish central bank comments.
  • Markets responded positively to lower-than-expected US inflation, leading to a decline in bond yields by over 10 basis points (bps).
  • US yield curve remains inverted, with the spread around -96 bps in July 2023.
  • The US dollar initially depreciated by 1% in June after the Federal Reserve’s pivot, but recouped some losses in early July before depreciating again due to a larger-than-expected decline in CPI inflation.
  • Emerging market currencies saw marginal gains in June, supported by capital inflows according to the MSCI currency index.

Global Central Banks’ Monetary Policy Actions: AE Banks Pause, EME Banks Maintain Stability

  • The US Federal Open Market Committee (FOMC) maintained the federal funds rate range at 5.0-5.25% in its June meeting, following a cumulative increase of 500 bps since March 2022.
  • Australia, New Zealand, and Israel also paused rate hikes in their July meetings.
  • European Central Bank (ECB), Swiss National Bank, and Sveriges Riksbank raised rates by 25 bps each in June, while Canada hiked by 25 bps in July.
  • UK and Norway raised rates by 50 bps, while most EME central banks maintained stable rates in Q3 2023. Turkey’s Central Bank increased its key rate by 650 bps to 15% in June, the first hike since 2021.

E-way bill volumes showed strong growth, indicating robust trade and transportation activity, despite a slight moderation.

What exactly are E-way bills?
E-way bill refers to Electronic Way Bill. GST E-way bill is a document used to track goods in transit introduced as part of the Goods and Services Tax. Any taxable person registered under GST who transports goods worth more than Rs.50,000 must have an E-way bill generated on the GST Portal.

Automobile sales and petroleum product consumption:

  • Automobile sales (wholesale) in June 2023 grew by 3.3% YoY, driven by the multi-utility vehicle segment.
  • Three-wheeler sales nearly doubled compared to the previous year, and tractor sales reached an eight-month high.
  • Retail sales, indicated by vehicle registrations, saw a 9.5% YoY increase in June.
  • Two-wheeler sales grew, although the Electric Vehicles (EV) segment declined due to reduced subsidies under the FAME-II scheme.
  • Daily average consumption of petroleum products decreased by 0.5% MoM in June, primarily due to lower demand for transportation fuels during the monsoon season.

In June 2023, the all-India unemployment rate (UR) rose to 8.5%, mainly driven by higher unemployment rates in rural areas. Although the labor force participation rate (LFPR) improved, the employment rate (ER) experienced a slight decline.

India’s merchandise exports contracted for the fifth consecutive month in June 2023, declining by 22.0% year-on-year (y-o-y). The contraction was widespread, with 77.5% of the export basket (21 out of 30 major commodities) experiencing a decline in comparison to the previous year.

India’s merchandise imports in June 2023 declined for the sixth consecutive month to US$ 53.1 billion, a 17.5% year-on-year decrease.

June 2023 manufacturing PMI moderated to 57.8 due to slower new orders, output, and purchase stocks. Future output index rose to a six-month high of 65.8. Services PMI remains in expansion, showing strong business expectations.

Food inflation rose to 4.6% in June (up from 3.3% in May) due to increased prices in sub-groups like spices and pulses. Vegetable inflation remained negative on a year-on-year basis, while deflation in edible oils intensified. Cereal inflation remained high.

Tomato prices spiked due to weather and pest damage, impacting household budgets. Tomato price volatility affects overall inflation and prices of other vegetables. Tomato prices have short-lived seasonal fluctuations.

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In March 2023, over two-thirds of bank loans were priced below 10%, with 46% priced between 8 and 10% and an additional 21% priced below 8%.

FPI flows in June 2023 hit a ten-month high, with India emerging as the top destination for FPI equity inflows among its emerging market peers.

India’s foreign exchange reserves increased by US$71.8 billion since October 21, 2022, reaching US$596.3 billion on July 7, 2023. This amount is sufficient to cover 9.7 months of projected imports for 2023-24 or 95% of the total external debt outstanding as of end-March 2023.

In June 2023, the Indian rupee (INR) strengthened by 0.1 percent (m-o-m) against the US dollar, while most major currencies depreciated.