Credit growth in India, rate decisions in the US and UK

Every Monday, Mint’s Plain Facts section features key data releases and announcements to watch out for over 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 as economic activity picks up. Decisions on interest rates in the US, UK and Brazil will be watched closely as central banks around the world worry about inflationary pressures. Here are the top releases to watch out for over the next seven days:

1. Credit growth in India

The Reserve Bank of India will release commercial bank credit and deposit data for the fortnight ending September 10 on Friday. There has been an improvement since July, but lending is still well below pre-covid levels and stuck in the slow lane, increasing only 6.7% year-on-year in the fortnight ended. August 27.

Much of the growth comes from farming activities and personal loans. Industrial credit growth returned to positive territory in July, but only reached a meager 1% despite a rapid recovery in economic activity. The trend is unlikely to change significantly in the near term. Parts of the economy have reached pre-pandemic levels, but industries face supply-side barriers in production.

However, as the recovery sets in, economists expect credit demand to accelerate. The upcoming festival season in particular could lead to the start of a recovery in demand, which in turn could lead to improved credit growth.

2. Meeting with the US Fed

The US Federal Open Market Committee will announce its monetary policy decision on Wednesday. Inflation is still very high, but a stable impression of 5.3% in August eased the challenge for the US Federal Reserve and should provide some leeway for policymakers.

A turn of events on the economic front could also support the Fed’s dovish stance, as employment data for August turned out to be disappointing. The resurgence of covid-19 cases has had an impact on the growth trajectory, as has the state of emergency declared by several states due to Hurricane Ida and Tropical Storm Nicholas. Until recently, analysts expected the Fed to announce a stimulus reduction schedule this week. However, signs of a spike in inflation and a slowing recovery have shifted opinions. Such an announcement is now likely to be delayed. Uncertainty over which direction the Fed will take should be of concern to emerging markets.

3. American PMI

A flash reading of the US Purchasing Managers’ Index (PMI) for September will be released on Thursday. There was a healthy push through May, but growth momentum is now showing signs of having peaked. The composite PMI index fell to an eight-month low of 55.4 in August. Manufacturing and services grew vigorously, but at a slower pace due to raw material shortages and the new wave of covid.

The slowdown is expected to continue in September due to the economic impact of the Delta variant. The gains made in the aviation and hospitality sectors are about to be reversed.

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

4. UK key 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 sales inflation rate to a nine-year high of 3.2% in August, after declining slightly in July.

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

Bailey cited supply chain disruptions and persistent labor shortages for the slowdown, but said he expected supply bottlenecks to “resolve” . The remarks suggest that the BoE may take a wait-and-see approach to support the recovery before considering an interest rate tightening.

5. Brazil’s key rate

Brazil has seen its retail price inflation continue to rise, despite its central bank becoming one of the first in the world to withdraw stimulus earlier this year. The inflation rate fell from 8.99% in July to 9.68% in August due to rising food and fuel prices. This will be a source of concern for the rate-setting panel, Copom, when it announces its monetary policy on Wednesday.

The committee has already raised the Selic benchmark rate four times since March. Yet August’s inflation figure is the highest in 21 years and more than three times the target set by the central bank. Currency depreciation, drought and rising international commodity prices, among other factors, are likely to continue to exert upward pressure on prices.

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

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