Inflation Trends

After surpassing the Reserve Bank of India's (RBI) inflation target in October, inflation has declined:

• October: 6.21%
• November: 5.48%
• December: 5.22% (as per National Statistics Office)

This decline is attributed largely to moderating food prices:

• Consumer food price index: 8.39% in December, down from 9.04% in November
• Vegetable inflation: 26.6% in December

Further reductions in vegetable prices in January might decrease inflation further, opening possibilities for the central bank to ease policy rates.

Currency and Foreign Exchange Reserves

The rupee continues to depreciate, surpassing the 86 mark against the dollar. The dollar is strengthening, with the dollar index around 110. US labor market data shows strength, suggesting limited rate cuts by the US Federal Reserve, causing the 10-year US bond yield to rise to 4.78%.

India's foreign exchange reserves have significantly decreased:

• October 4, 2024: $701 billion
• January 3, 2025: $634 billion

This drop indicates the central bank's intervention in the currency market to stabilize the rupee.

Market and Investment Trends

Stock markets are undergoing corrections, with the BSE Sensex dropping by 1.36%. Foreign investors remain net sellers, with foreign portfolio investor investments at -$2.7 billion as of January 13. Brent crude oil prices rose by 1.7% to $81 per barrel due to new US sanctions on Russian oil producers, potentially impacting inflation.

Growth Concerns

There is rising concern over economic growth. After a slowdown in GDP growth to 5.4% in Q2, the RBI revised its annual growth estimate to 6.6%. However, the NSO's first advance estimates suggest growth at 6.4%. Nominal GDP is expected to be below 10% for the second consecutive year.

Future Economic Indicators

Clarity on US tariffs and the Federal Reserve's policy stance is expected post-Donald Trump's inauguration on January 20 and the Fed meeting later. The upcoming Union budget will reveal the Centre's fiscal position.

In a climate of increasing uncertainty, the central bank faces narrowing choices.

Trump's Middle East Policy Overview

Background and Context

• Donald Trump is preparing for his second term as President of the United States, raising questions about his foreign policy, particularly in the Middle East.
• Negotiators from Qatar, Egypt, and the US have been trying to establish a deal between Israel and Hamas.
• Trump has warned of severe consequences if Hamas does not release Israeli hostages by his inauguration day.

The Middle East Under Trump 1.0

• When Trump took office, the Middle East was fraught with conflicts, including the fight against the Islamic State in Syria and Iraq.
• Saudi Arabia, under Muhammad Bin Salman (MBS), had taken a strong stance against Iran, aligning with the Trump administration's anti-Iran rhetoric.
• The UAE and Saudi Arabia, along with Egypt and Bahrain, imposed a blockade on Qatar due to its ties with Iran and alleged support for the Muslim Brotherhood.

Trump's Key Policy Achievements

• Trump reduced US commitments in Syria, focusing mainly on Tehran by designating the Iranian Revolutionary Guards as a terrorist group and revoking the nuclear deal.
• He recognized the Golan Heights as part of Israel and moved the US Embassy to Jerusalem, reinforcing his support for Israel.
• The Abraham Accords, signed in September 2020, normalized relations between Israel and several Arab states, including the UAE and Bahrain.

Current Middle East Scenario

• Significant changes have occurred in the region since 2020, including a shift in Arab leadership's stance on Israel's actions in Gaza and reordering of Iran's Axis of Resistance.
• Saudi Arabia and Iran's relationship is at a "historic turning point," with a recent resolution from the Arab League-OIC Riyadh Summit condemning Israel's actions in Gaza.
• Trump's potential return to maximum pressure on Iran and the impact on US-Saudi negotiations over security guarantees remain uncertain.

Challenges and Future Prospects

• While Trump has generally avoided US combat engagements abroad, the implications for Israel's defense strategies are uncertain.
• The Middle East landscape has evolved significantly, with new challenges and dynamics that differ from when Trump first took office in 2016.