India’s consumer price inflation highest since August 2014

Financial Markets
Emerging-market shares set for the steepest 3-day drop since January and currencies fell versus the
dollar as a weakening in oil prices and growing concerns about Brexit prompted a sell-off in riskier assets
before central bank meetings in the U.S. and Japan. MSCI’s gauge of developing-country stocks fell 1.7
percent, extending a 3-day loss to 3.9 percent, with China’s Shanghai Composite Index tumbling 3.2
percent, the most since February 25. The MSCI Emerging Markets Currency Index slid 0.5 percent, and
has declined 1 percent over three days.

U.S. Treasuries advanced for a fifth day on Monday, the longest winning streak since February, as
increased worries about Brexit and shifting U.S. interest-rate outlook boosted demand for safe-haven
government debt. Benchmark Treasury 10-year note yields slid 2 basis points (bps) to 1.63 percent, after
reaching 1.61 percent earlier, the lowest since February 11. 10-year yields in Germany debt remained
near zero, close to record lows, while Japanese and U.K. 10-year government bond yields fell to their
lowest levels on record.


Advanced Markets
U.S. consumers’ inflation expectations over the next 12 months rose to 2.62 percent in May, up from 2.61
percent in April, according to a survey by the New York Federal Reserve. The strengthening of the
inflation expectations is partly attributed to projected increase in energy and housing prices.

Japan’s business confidence among large companies (capitalization of over ¥1 billion) deteriorated to -7.9
in April to June, on an all-industry basis, according to the Finance Ministry and the Cabinet Office. This
was the lowest reading since April to June 2014 when the index slumped to -14.6, following the country’s
consumption tax rate hike. The sentiment was far worse than the market expectations of a -2.2 drop,
partly attributed to companies’ cautiousness and appreciation of the yen against other major currencies.


Emerging and Developing Economies
East Asia and Pacific

Chinese industrial production rose 6.0 percent (y/y) in May, the same pace as in April and slightly above
market forecasts. While manufacturing and utility output expanded, mining production fell. On a monthly
basis, industrial production increased 0.45 percent in May, compared with a 0.47 percent rise in April.


Europe and Central Asia

Consumer prices in Kosovo edged down 0.1 percent (y/y) in May, the same as in April. Decreases in
prices included those for food and non-alcoholic beverages, transport, housing and utilities. In contrast,
cost of furniture and household goods and alcoholic beverages and tobacco increased. On a monthly
basis, consumer prices in Kosovo fell 0.2 percent after dropping 1.0 percent in April.

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South Asia

India’s consumer prices rose 5.8 percent (y/y) in May, higher than an upwardly revised 5.5 percent rise in
April and compared to market expectations of 5.5 percent. It is the highest figure since August 2014 as
food inflation increased to 7.6%, the most in 21 months.


Sub-Saharan Africa

The central bank of Mozambique raised its benchmark lending rate by 150bps to 14.25 percent, the sixth
rate hike in the last nine months. Policymakers noted a slowdown in economic activity, high inflation and
pressures on the metical due to the suspension of foreign aid and political tensions. The central bank also
raised the deposit rate by 150 bps to 7.25 percent, but left the reserve requirement ratio unchanged at
10.5 percent for liabilities in national currency and 15 percent for liabilities in foreign currency.

The central bank of Uganda lowered its benchmark lending rate by 100bps to 15 percent, bringing the
borrowing cost to the lowest since July last year. Policymakers last cut the central bank rate by 100bps in
April, citing lower growth and subdued consumer demand.



June 13, 2016



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