Notwithstanding the moderating inflationary pressures, the Reserve Bank is expected to maintain its neutral policy stance at the policy review meet this week, says a Nomura report. According to the Japanese financial services major, the Reserve Bank is expected to stay on hold till March 2018 and thereafter go for a cumulative 50 bps rate hike starting in April 2018. “… at the June 7 policy meeting, we expect the RBI to acknowledge the weakness in inflation, but maintain its neutral policy stance. In our baseline, we expect the RBI to stay on hold until March 2018, but hike by a cumulative 50 bps starting in April 2018, as we expect both growth and inflation to edge higher,” Nomura said in a research note. According to official data, India’s growth rate slipped to 6.1 per cent in the January-March quarter and 7.1 per cent during 2016-17. Nomura noted that the official GDP data should make it amply clear that “both growth and inflation signals are still reeling under the effects of demonetisation, which are transitory, and it is best to wait for data to stabilise before making any judgement”.
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The report said the March quarter GDP numbers reflect the demonetisation impact and going forward a V-shaped recovery in the second half of this calender year is likely. “Once the GST is implemented, we expect a release of pent-up consumption demand, remonetisation, lower lending rates and pay rises for state government employees to result in a V-shaped recovery from 6.1 per cent GDP growth in first quarter 2017 to 7.5 per cent in second half of 2017 and further to 7.7 per cent in 2018,” Nomura added. In fiscal year terms, Nomura expects GDP growth to rise to 7.4 per cent in 2017-18 (year ending March 2018) from 7.1 per cent in 2016-17, assuming a normal monsoon.