India: Inflation steady, trade deficit persists – DBS

DBS Group Research anticipates India's July inflation to remain stable at 4.4% year-on-year, with core readings below 4% due to lower precious metal prices. Food prices show varied patterns, while fuel price changes could raise utility and fuel expenses. Trade data forecasts resilient exports but more imports, sustaining a trade deficit around USD 29–30 billion.

Inflation and trade figures will be released in mid-August. July's headline inflation was stable at 4.4% compared to June. High-frequency food data indicates increases in pulses, sugar, milk, and edible oils, with vegetable prices remaining stable. July's rainfall increase helped boost planting activities. Domestic retail fuel products (non-subsidized LPG rose 10% YoY in July) may also impact utilities and fuel segments.

Nonetheless, core readings should stay benign at sub-4% in July, aided by precious metal moderation. Trade numbers show exports outpacing imports, resulting in a -$29 billion to -$30 billion trade deficit, similar to June. GBP/USD trades with a negative outlook around mid-1.3600s at the beginning of a new week, reflecting US economic sanctions uncertainty over Iran.

EUR/USD trades defensively below 1.1700 due to US dollar strength following Treasury's bond buyback plan. Gold near its highest level in three months near $4,650, benefitting from US Dollar weakness and US-Canada trade tensions. The US Treasury announced increased liquidity support buyback operations, doubling the 10-year to 20-year and 20-year to 30-year sectors from $2 billion to at least $4 billion, effective September 9, until November 4.