Economy, Macro & Market Cycles

Balance of Payments

A record of all economic transactions between a country's residents and the rest of the world in a period.

Balance of Payments = Current Account + Capital Account + Financial Account + Errors and Omissions = Change in Reserves ₹ crore

Base Effect

The distortion in a growth rate caused by an unusually high or low value in the comparison period.

Test: the current growth rate is driven substantially by the level of the year-earlier figure rather than by current activity %

Economy, Macro & Market Cycles

Bear Market

A sustained period of falling prices, conventionally marked by a decline of 20% or more from a high.

Test: the index has fallen 20% or more from its prior peak %

Economy, Macro & Market Cycles

Bubble

A period in which asset prices rise far above any defensible estimate of value, sustained by expectations of further rises.

Test: prices are justified primarily by the expectation of selling higher rather than by the asset's cash flows qualitative

Economy, Macro & Market Cycles

Bull Market

A sustained period of rising prices, conventionally marked by a rise of 20% or more from a low.

Test: the index has risen 20% or more from its prior trough, without an intervening 20% decline %

Economy, Macro & Market Cycles

Business Cycle

The recurring pattern of expansion and contraction in economic activity around a long-term growth trend.

Phases: expansion, peak, contraction, trough, recovery, repeating with irregular length and amplitude qualitative

Economy, Macro & Market Cycles

Capacity Utilisation

The proportion of installed productive capacity that is actually being used.

Capacity Utilisation = Actual Output / Maximum Possible Output x 100 %

Economy, Macro & Market Cycles

Cash Reserve Ratio

The proportion of deposits banks must hold as cash with the Reserve Bank, earning no interest.

Required Reserves = Net Demand and Time Liabilities x Cash Reserve Ratio %

Economy, Macro & Market Cycles

Commodity Cycle

The long swing in commodity prices driven by the lag between demand changes and the supply response.

Test: high prices induce investment in new supply, which arrives years later and depresses prices, discouraging investment in turn qualitative

Economy, Macro & Market Cycles

Consumer Price Index

An index tracking the price of a fixed basket of goods and services bought by households.

CPI = (Cost of the Basket in the Current Period / Cost of the Basket in the Base Period) x 100 index points

Economy, Macro & Market Cycles

Core Inflation

Inflation excluding food and fuel, whose prices are volatile and driven largely by supply conditions.

Core Inflation = Headline Inflation computed on the basket excluding food and fuel components %

Economy, Macro & Market Cycles

Correction

A decline of roughly 10% or more from a recent peak, short of the 20% that defines a bear market.

Test: the index has fallen between 10% and 20% from its prior high %

Economy, Macro & Market Cycles

Credit Growth

The rate of increase in bank lending to the economy.

Credit Growth = (Current Outstanding Bank Credit - Year-Earlier Credit) / Year-Earlier Credit x 100 %

Economy, Macro & Market Cycles

Crude Oil Price

The price of crude oil, a key macroeconomic variable for India because most of its requirement is imported.

Impact on Import Bill = Change in Price per Barrel x Annual Barrels Imported %

Economy, Macro & Market Cycles

Current Account Deficit

The excess of a country's payments for imports, services and transfers over its receipts from them.

Current Account Balance = Trade Balance + Net Services + Net Primary Income + Net Transfers %

Economy, Macro & Market Cycles

Deflation

A sustained fall in the general price level, the opposite of inflation.

Test: the price index declines from one period to the corresponding earlier one, giving a negative inflation rate %

Economy, Macro & Market Cycles

Disinflation

A slowing in the rate of inflation, while prices continue to rise.

Test: the inflation rate falls between periods while remaining above zero %

Economy, Macro & Market Cycles

Domestic Institutional Flows

Net purchases or sales of Indian securities by domestic mutual funds, insurers and pension funds.

Net Flow = Value of Purchases - Value of Sales by domestic institutions over the period ₹ crore

Economy, Macro & Market Cycles

Exchange Rate

The price of one currency expressed in terms of another.

USD/INR = number of rupees required to buy one US dollar ₹

Economy, Macro & Market Cycles

Expansion

The phase of the business cycle in which output, employment and incomes are rising.

Test: real GDP, employment and industrial production are rising on a sustained basis from a prior trough qualitative

Economy, Macro & Market Cycles

Fiscal Deficit

The gap between the government's total expenditure and its total revenue excluding borrowings, in a year.

Fiscal Deficit = Total Expenditure - (Revenue Receipts + Non-Debt Capital Receipts) %

Economy, Macro & Market Cycles

Fiscal Policy

The government's use of taxation and spending to influence economic activity.

Fiscal Impulse = Change in the Fiscal Deficit as a percentage of GDP, adjusted for the cycle %

Economy, Macro & Market Cycles

Foreign Exchange Reserves

Foreign currency assets, gold and reserve positions held by a central bank to meet external obligations and manage the currency.

Import Cover = Foreign Exchange Reserves / Average Monthly Imports, expressed in months ₹ crore

Economy, Macro & Market Cycles

Foreign Institutional Flows

Net purchases or sales of Indian securities by foreign portfolio investors.

Net Flow = Value of Purchases - Value of Sales by foreign portfolio investors over the period ₹ crore