Country Economic Forecasts > India

The recent softening in CPI inflation and industrial production growth has fuelled speculation of further easing. In our view, the latest data are not sufficient to trigger another interest rate cut. While the monetary policy statement is likely to be more accommodative than the previous one, we do not think that one good inflation number is likely to convince the RBI that upside risks to inflation have completely dissipated. Indeed, we have recently reviewed our inflation forecasts and expect the CPI to average 5.35% in Q1 2017. As this is above the 5% target, it supports our view that further interest rate cuts are unlikely. Also, our bottom-up analysis of growth suggests that the economy may have passed the low point. This is, however, not reflected in our top-down forecasts. From a national accounts perspective, we expect growth to moderate into 2017 because of the outsized role played by 'discrepancies' in driving up growth in the last few quarters. But aside from that, the underlying dynamics point towards a possible improvement in the growth picture, largely driven by consumption.