Country Economic Forecasts > India

In line with our expectations, the RBI lowered the repo rate by 25bp at its April meeting. In addition, it announced several measures to change its liquidity management framework, which will significantly strengthen the transmission of monetary easing to lending rates in our view. The accompanying policy statement retained an accommodative stance and we do not rule out the possibility of further easing later in the year. However, we await more clarity on the trajectory of inflation (given the approaching monsoon) and the fiscal consolidation path before reviewing our baseline forecast of no further rate cuts this year. We expect a slower pace of fiscal consolidation from the government than that outlined in the budget, which may worry the RBI.With modest fiscal consolidation likely to be offset by modest easing in monetary policy, we have left our 2016 and 2017 annual GDP growth forecasts unchanged at 7.4% and 7.2% respectively and continue to look for more broad-based growth. While consumption will remain the primary driver of growth, we expect the contributions from investment and net exports to improve, helped by concerted policy efforts to boost capital expenditure.