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10/15/2018 Wealth Overview

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RBI keeps repo rate unchanged


Speak of the Week 2 days ago

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10/15/2018 Wealth Overview
RBI keeps repo rate unchanged

(https://www.icicibank.com/campaigns/mailers/2016-june/sotw-17-06-2016/voice119.html)

Indian Economic Update

The Monetary Policy Committee kept the Repo rate unchanged at 6.50% on the back of
downward bias to inflation trajectory. The stance was changed to “calibrated tightening”,
signalling upside risks to inflation and possibility of hikes going ahead. It also signalled
to the markets that the central bank would not use interest rates to defend the currency.
In the post policy media interaction, it was re-iterated that the RBI would only be
intervening to manage volatility and not the levels of the currency. RBI cited several
upside risks to their inflation trajectory: oil prices, Minimum Support Price (MSP)
implementation, volatility in global financial markets, risk of input prices moving in either
direction, possibility of fiscal slippage, second round effect of House Rent Allowance
(HRA) and a closing of output gap.
In their recent economic outlook report, International Monetary Fund (IMF) kept India’s
growth rate for 2018 at 7.3% while reducing world Gross Domestic Product (GDP)
growth projection by 0.2%. Organisation of Petroleum Exporting Countries (OPEC’s)
monthly report also kept India’s growth rate unchanged at 7.6%.
The Government of India hiked import duty on certain communication items, including
base stations to up to 20% as part of the effort to check a widening current account
deficit.

Global Update

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10/15/2018 US stocks sank as a steep decline in technology shares sent Wall StreetWealth
on pace for its
Overview
worst day in 8 months. Fear of faster interest rate hikes by the US Federal Reserve,
rising Treasury yields, and a warning from the IMF about risks to financial stability amid
uncertainty about trade war weighed on investor sentiment.
US September Consumer Price Index (CPI) inflation came in at 2.3% YoY vs 2.7% in
the prior month, lower than expectations. While core inflation printed at 2.2% YoY in
September similar to the reading in August.
The Korean Won led a drop in Asian currencies as the region’s shares tumbled after the
sell-off in US stocks.
A Bank of England deputy governor has called on the government to bring the U.K.’s
multiple inflation indexes into line. Mr Ben Broadbent told the House of Lords’ Economic
Affairs Committee, which is investigating whether the retail prices index is an
appropriate measure of inflation.
The People’s Bank of China (PBOC) has eased policy further to combat weakening
Chinese growth momentum pushing the USD/CNY pair higher.
The IMF cited escalating trade tension and stresses in emerging markets as it
downgraded its global growth projections for the first time since July 2016. IMF
forecasts global growth at 3.7% for this year and next, down from 3.9% predicted three
months ago.

Equity
Domestic stock markets went through a volatile week, where a major fall was seen a day after
the biggest single-session gain in over six months.
A weakening dollar, fall in crude prices and various efforts by the government provided
support, while a heavy sell-off in world markets added to the negative sentiment.

During the week Sensex gained 1.04% to close at 34733.58 while Nifty advanced 1.51% to
close at 10472.5.

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10/15/2018 Wealth Overview
Debt
Yields remained stable during the week, with a slight downwards trend.
The Reserve Bank had announced to inject Rs 12,000 crore liquidity into the system through
purchase of government bonds to meet the festival season demand for funds. Fall in crude
prices also supported the bond prices.

The 10Y benchmark yield ended at 7.97% as compared to the previous week’s close of 8.03%

Oil
Oil prices have slumped to more than two-week lows, with investor sentiment more bearish by
a bigger-than-expected build in US crude inventories.
OPEC Secretary-General Mohammad Barkindo said that there are many non-fundamental
factors influencing the oil market which are beyond oil producers' control. Also, OPEC in its
monthly report has revised their demand outlook lower for 2019. OPEC oil output rose by
132,000 bpd in September and Iran’s output fell by 150,000 bpd in the same month.

Gold
Gold prices saw an upward movement, because investors chose safe bets as global equity
markets weakened sharply. The gain in the yellow metal was further supported by a weaker
Dollar. It is trading at levels well above USD 1,205 per ounce.

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10/15/2018 Wealth Overview
Currency
After breaching the 74 mark last Friday, the Rupee started gaining strength against the US
Dollar during the latter part of the week, with reassuring statements from the government and
weakening of the dollar.
The Dollar index weakened overnight as CPI data from the US missed estimates. This gave
relief to most EM currencies, which gained overnight.
The Euro is trading higher against the greenback at ~ 1.16 levels.
The safe-haven yen strengthened by ~1% to 112.24 against the dollar, its highest level this
month, on the back of risk aversion in the wake of warnings from the International Monetary
Fund over global growth and financial stability.

Source: ICICI Bank Research, Private Banking Investment Strategy Team, Bloomberg and
CRISIL.

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