Archive for August 1st, 2008

Indian Economy forecasts in sync?

August 1, 2008

I had posted earlier that RBI has begun to conduct and publish Survey of Professional Forecasters.

RBI released the results of the second survey which was conducted in Q1 2008-09. I have tried to compare the key variables across the 2 surveys. I have taken the median figures.


  Q4 2007-08 Q1 2008-09
  Ist survey 2nd survey
GDP 8.1 7.9
Agri 3 3
Mfg 8.1 7.5
Services 9.7 9.5
Money Supply 19 19.5
Combined Fiscal deficit 6 6.9
Central Govt 3.2 3.9
G-sec 10 year yield 7.8 8.8
Inflation WPI    
  Q1 2008-09 6.9  
  Q2 2008-09 7 11.7
  Q3 2008-09 6.8 11.4
  Q4 2008-09   9.2
  Q1 2009-10   6.1
Repo Rates 7.6 8.9
Reverse Repo Rates 6 6.4
Cash Reserve Ratio 8 9.1

A couple of points to note:

  • GDP is expected to be around 7.9% in 2008-09, lower than previous survey – 8.1% and lower than 9% in 2007-08. The All three, agri, services and manufacturing sector are expected to grow at a slower pace. In 2007-08, services grew by 10.7%, mfg by 8.1% and agri by 4.5% 
  • Fiscal deficit of central govt is expected to be much higher from 3.1%  in 2007-08 to 3.9% in 2008-09. This is much higher than Budgeted Estimatesof 2.5% . The forecasted deficit has also increased between the 2 surveys
  • Inflation knowingly has increased much higher in the 2 surveys. I still don’t understand whether actual inflation leads to inflation expectations or the otherway round. As it is pretty obvious that people have revised inflation expectations in second survey looking at higher releases in inflation. Even the maximum figures expected in first survey are no where near to the median figures in second survey! This was a question I had raised in my report as well. I think both reinforce each other 
  • Despite such high inflation, markets don’t expect policy rates to harden by much.  This is surprising as, given the median policy LAF Repo rate at 8.9% and inflation at 11.7%, markets are wishing negative real rates. Why should that be? Moreover, LAF Repo rates are already 9% and as per forecasts they expect average LAF Repo rates in the year to be 8.9%. Do they feel these rate hikes will be enough to calm existing inflation numbers?
  • The same is the case with G-Sec yields with markets expecting much lower yields. Why should this be as markets expect average inflation to be around 11% for remaining part of the year. Clearly both yields and rates are not in sync.

What I also found interesting was the next table as well. In the second round survey,  Some have forecasted both Reverse Repo and Repo rates at 6% !!

  Median Max Min
Repo Rates 8.9 9.5 6
Reverse Repo Rates 6.4 9 6
Cash Reserve Ratio 9.1 9.8 8.5

Assorted Links

August 1, 2008

1. WSJ Blog points did recession start in 2007? Hamilton says not quite a recession yet

2. CB points to a new paper on randomised evaluations

3. Mankiw points to why people hate rising gas prices

4. Ajay Shah points to why China consumes much more crude oil?

5. MR points Cochrane responds to the opposition of setting a Milton Friedman Centre.

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