Indian economy, inflation may surprise on the upside: Credit Suisse

Jan 23 2013, 22:25 IST
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'Both inflation and the twin deficits likely to throw up surprises on the upside this year'. (AP) 'Both inflation and the twin deficits likely to throw up surprises on the upside this year'. (AP)
Summary'Both inflation and the twin deficits likely to throw up surprises on the upside this year'.

well as robust monetary growth.

"The good news on inflation is that most of these drivers are now waning, while the lagged effects of sub-trend growth and weaker rupee denominated commodity price inflation are continuing to feed through," he said.

"Looking ahead, our analysis suggests the core rate will drop below 4 per cent by mid-2013, with the headline rate slipping to less than 6 per cent. This in turn helps to explain our sub-consensus headline wholesale price inflation forecasts of 7.3 per cent and 6 per cent in FY13 and FY14 respectively," Prior-Wandesforde said.

On policy easing by the apex bank, Prior-Wandesforde said RBI's post-policy review statements of October 30 and December 18 signal a change in its hawkish tune, which in turn has reignited the debate concerning the likely scale of policy rate reductions to come.

Stating that it view has been and remains the most dovish of all, the report said, "we are looking for a total of 125 bps of repo rate cuts this year, with 50 bps on January 29, a further 50 bps in April and a final 25 bps in July."

On the possibility of the rating agencies downgrading the country's rating to junk or sub-investment grade this year, the brokerage said "if our assumptions are reasonably accurate, the chances of two of the three main rating agencies junking India by end-2013 is small, with the likelihood being just about 15-20 per cent.

It also said that Fitch appears to be close to pulling the trigger but it seems is waiting for the Budget before deciding whether to do so.

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