The RBI is expected to keep rates on hold till March next year, according to Nomura
New Delhi: Notwithstanding the moderating inflationary pressures, the Reserve Bank of India or RBI is expected to maintain its neutral policy stance at the policy review meet due on June 7, according to a report by Japanese financial services major Nomura. The Reserve Bank of India is expected to keep rates on hold till March next year and thereafter go for a cumulative hike of 50 basis points - which is 0.5 per cent - in interest rate starting in April 2018, Nomura said.
"...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".
The report said the GDP numbers for the January-March quarter reflect the impact of demonetisation and going forward, a V-shaped recovery in the second half of this calendar 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.
"...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".
The report said the GDP numbers for the January-March quarter reflect the impact of demonetisation and going forward, a V-shaped recovery in the second half of this calendar 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.
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