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MOSL: ECOSCOPE: 3QCY19-India’s Quarterly Economic Outlook; RBI could cut repo rate to 5.25% by end-2019

ECOSCOPE: 3QCY19: India’s Quarterly Economic Outlook; RBI could cut repo rate to 5.25% by end-2019

 

• When compared with our , we revise down our FY20 growth forecast to 6.5%, slightly revise up our inflation forecast to 4.1% but keep our current account deficit (CAD) forecast unchanged at 2.2% of GDP.
• Although the RBI and the government expect a revival in GDP growth from 6.8% last year to 7% in FY20, we believe that growth could weaken further to 6.5% this year.
• Moreover, although food prices are increasing again, we expect headline inflation to remain at sub-4% up to Oct’19, implying that the central bank could reduce the policy rates by another 50 basis points (bp) by end-2019. The transmission, however, will be negligible-to-very limited at best.
• Finally, the government in its Union Budget 2019-20 has stuck to its fiscal prudence path. However, as the government now plans to borrow in foreign currency, the INR could stay strong in FY20 as well. Accordingly, we revise our INR/USD forecast from the earlier 71.8 to 69.7 now (as against 69.9 in FY19 and 69.5 in 1QFY20).