The Indian economy will contract by 6.1% in the April-June quarter and is likely to expand only in the December quarter, a Japanese brokerage said on April 13, expecting another 0.75% in rates by the RBI to push growth in 2020.
The conventional approach to rate setting which involves a sharp focus on inflation will take a backseat and growth concerns will be accommodated, Nomura said in a report after the Monetary Policy Committee (MPC) minutes were made public.
The economy will grow at 3.2% in the January-March period and contract by 6.1% (June quarter) and 0.5% September quarter, before rising by 1.4% in the last quarter of the calendar year, it said.
It can be noted that the coronavirus ( COVID-19 ) crisis has resulted in a three-week lockdown of India, which may also be extended further to arrest the spread of infections. The likely economic impact had resulted in the RBI advancing its bi-monthly policy review meet by a week and slashing rates by 0.75% and easing out liquidity in late March.
“We believe the ‘conventional’ flexible inflation targeting framework will take a backseat in forthcoming policy meetings and members will be keen to look through near-term inflationary pressures, as rescuing growth and maintaining financial stability will emerge as the overwhelming priority,” the brokerage said.
More unconventional policy measures are set to follow, it said, adding that the RBI will cut its key rates by a further 0.75% till December.
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At their next meeting in June, members of the MPC will confront the deteriorating impact of the lockdown , it said, adding that food prices have spiked in April and the inflationary pressures may not immediately abate.
There will be a rate cut of at least 0.25% in June and the MPC may choose to frontload more policy easing in view of growth risks, it said.
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The unconventional policies accompanying the rate cut will include a commitment towards aggressive open market operations, further liquidity injections via targeted long term repo operations and further forbearance measures, it said.
