'India to grow at 7.4% in FY15-16; more rate cuts in pipeline'

Rate cuts by the central bank will be influenced by the US Fed rate decision and China-linked volatility

India is likely to grow at 7.4 per cent this fiscal, slightly lower than the earlier estimate of 7.6 per cent, a DBS report said today adding the Reserve Bank may go for 50 bps more rate cuts amid slower growth and faster than expected pullback in inflation.

According to the global financial services major, upturn in growth for the Indian economy would be more gradual, with the consumption and investment turnaround likely to be slower than anticipated.

"We revise down our FY15/16 growth estimate to 7.4 per cent (as against 7.6 per cent earlier), inching up to 8 per cent in FY16/17 (as against 8.3 per cent earlier)," DBS said in a research note.

India's gross domestic product growth rate slipped to 7 per cent in the April-June quarter of 2015-16, from 7.5 per cent in the preceding quarter.

"Against the backdrop of slower growth and faster-than-expected pullback in inflation, we revise our rate call to include 50 bps more rate cuts in this fiscal, first of which is likely this month," the report added.

According to DBS, inflationary expectations will stay ‘tempered’ amid soft commodity prices. It expects the September-December CPI inflation to average around 5 per cent, still below the January 2016 Consumer Price Index target of 6 per cent.

RBI, which has lowered the benchmark rate by a combined 75 basis points so far this year in three instalments, will hold its next bi-monthly monetary policy meet on September 29.

Rate cuts by the central bank will be influenced by the US Fed rate decision and China-linked volatility.            

"Assuming stable market conditions in the run-up to the September review and fading US hike risks, the RBI is on course to lower rates ," it said.

It further added that if the US hikes interest rates in September, "the RBI will sit on its hands for the time being to allow markets to stabilise and price in further rate increases, before pushing domestic rates lower."

Image: Railway workers push a wagon loaded with coal. Photograph: Reuters