Indian Rupee after weakening to our expected levels of 61.70/80 on spot, turned higher towards 61.04/06 levels. Large offers from the sovereign and also from FIIs pulled the pair lower by the close of trading on last Friday. Over the last two sessions, the USD/INR has been caught within a range of 61.05 and 61.25 levels on spot. Economic data has been lackluster from India. Globally, data points from Euro zone continues to paint a picture of weak economic fundamentals of a non-Germany Euro zone. Even in the Germany, sentiments indicators, like ZEW and IFO have started to fall sharply, raising alarms bells. Check updates: Indian rupee vs US dollar, others
In India, industrial output grew at meager 3.4% in June slowing from 5% in May of this year. Manufacturing, which accounts for the nearly three-fourth of the index, rose by only 1.8% in June. For the first three months of this fiscal year, IIP grew recorded a growth of 3.9%, as against contraction of 1% in the first quarter of 2013-14. A sharp contraction in consumer goods caused the weak growth in industrial output. The weak growth in IIP stand out as same month last year, IIP had contracted by 1.8%, leading to a low base benefit.
Consumer inflation rose to 7.96% in July from upwardly revised 7.46% in June. Food inflation accelerated 9.36% in July from 7.97% in June. Sharp increase in vegetable prices caused the consumer inflation to spike. RBI governor has repeatedly warned that India's high inflation is cause of worry and unless it is cured in a sustainable manner, currency would remain weak and growth can be of poor quality. We have had mentioned a number of times in our research reports, that inflation is a monetary phenomenon and until and unless growth of money supply is curbed, inflation problem can not be cured over the long run. In recent newspaper articles, quoting from a report prepared by National Institute of Public Finance and Policy on India's illicit economy, said that the size of black economy may be as high as 75% of the accounted for GDP. The report has cited education sector, mining sector and the real estate sectors as the largest contributor to the parallel economy. Therefore, when we talk about money supply, we refer to it in its entirety. RBI governor has also warned the current downtrend in inflation is being