As Economic Growth Slows, RBI May Lower Key Rates In April, Say Experts

Economy grew a lower-than-expected 6.6 per cent in the October-December period
Economy grew a lower-than-expected 6.6 per cent in the October-December period

India's economy grew a lower-than-expected 6.6 per cent in the October-December period, the lowest in five quarters, dragged by lower farm and manufacturing growth, government data showed on Thursday. A poll of economists by news agency Reuters had forecast a growth of 6.9 per cent for the December quarter, compared with a downwardly revised 7.0 per cent rise in July-September. The government also revised its 2018-19 GDP (gross domestic product) growth estimate to 7 per cent from 7.2 per cent.


A Prasanna, chief economist, ICICI Securities Primary Dealership, Mumbai:

"The Q3 GVA was in line with our expectations but the GDP data was somewhat higher. The revisions to data suggest that the economy had lost momentum starting from the second quarter itself. Headwinds to consumption and external demand are weighing on growth even as the nascent capex recovery is providing some signs of hope. The economy is entering FY20 with a weak momentum. Lower oil prices, lower interest rates and continued capex growth should help in growth recovering to 7.3 per cent in FY20. With growth outcomes weaker than expected and inflation expected to be below target, we see the MPC cutting policy rates by 25 bps in April."

Sujan Hajra, chief economist and executive director, Anand Rathi Shares and Stock Brokers, Mumbai:

"The numbers are not particularly encouraging, but India's overall growth rate is somewhat close to 7 per cent, and it remains the fastest growing country in the world, which is a little solace as growth is coming down globally."

"If you go by the full-year forecast, it basically means the fourth-quarter number will be around 6.4 per cent, which is slightly worse than the current quarter. So, I'm slightly perplexed because my sense was that the fourth quarter would be largely similar to the third quarter."

"I wouldn't be surprised if the market now starts talking about a 50 bps rate cut by the RBI in April rather than a 25 bps cut."

"As of now, the tensions at the border won't have a major impact on GDP growth in the coming quarters, but there might be some impact on flows."

Aurodeep Nandi, India economist, Nomura, Mumbai:

"The GDP growth number essentially shows the cyclical slowdown entrenching itself. Going ahead we do expect further moderation on tighter financial conditions, weaker global demand and political uncertainty. Therefore, despite budget and policy interest rates easing, there are enough growth headwinds to overpower the policy tailwinds. With low food prices keeping RBI's headline inflation projection for end-2019 below 4 per cent, the dullness of growth prospects serves as a recipe for a 25 basis point rate cut by in April."

Tanvee Gupta Jain, chief India economist, UBS Securities India, Mumbai:

"Real GDP growth in the December quarter at 6.6 per cent is broadly in line with our expectations. Considering the CSO now expects full-year FY19 advance GDP growth estimate at 7 per cent, we expect growth in the March quarter at 6.1-6.4 per cent."

"Our UBS India Financial Condition Index indicates that there is some easing in the index from January 2019 onwards and if that trend sustains, we expect growth to start recovering from the June 2019 quarter onwards. The easing monetary (we now expect MPC to cut rates by cumulative 75-100 bps in this cycle) and fiscal policy will provide some leeway to boost consumption and hence, overall growth over the coming quarters."

Anita Gandhi, whole time director, Arihant Capital Markets, Mumbai:

"For the market perspective, this number is disappointing. Global growth is also slowing down."

"Employment generation is very important from the perspective of GDP growth. As per the latest data, India has seen improvement on that front."

"GDP is like the government's report card. People will see it on a year-to-year basis, not just a quarter and this could have an impact given elections are near."

Rupa Rege Nitsure, group chief economist, L&T Finance Holdings, Mumbai:

"I had expected the overall GDP growth for FY19 to get revised downwards, as the farm sector had suffered due to extremely uneven rainfall, depleted water reservoir levels in key agrarian states and their impact on sowing of food grains. Manufacturing and small services too had slowed due to a crisis of confidence for the NBFC sector during September to December 2018. The GDP data has correctly captured these events that had impacted growth. In retrospect, the RBI's policy actions on February 7 get strongly vindicated."