Main focus of the monetary policy is on liquidity and further action depends on whether RBI thinks liquidity is permanent or transitory, Sonal Varma, MD & Chief India Economist at Nomura Financial Advisory & Securities (India) said.
Official data showed India's gross domestic product (GDP) grew 7 percent annually for the quarter, sharply beating expectations for a 6.4 percent growth rate in a Reuters poll. The economy slowed from the September quarter's 7.3 percent annual growth rate.
The slowdown that started in the October-December quarter of 2016, post the demonetisation is spilling over into the first quarter of 2017 (January-March).
India's WPI inflation rose to a 30-month high of 5.2 percent in January from 3.4 percent in December. WPI inflation, which reflects the annual rate of price rise, has risen for the second straight month, notwithstanding the cash crunch following demonetisation.
According to the global financial services major Nomura, following subdued growth in the first quarter, a V-shaped recovery is on the cards due to remonetisation, wealth redistribution and the lagged effects of lower lending rates.
Ahead of the Reserve Bank of India (RBI) meeting on February 8, the question doing the rounds is whether the Central Bank will cut rates or hold its decision to do so in the meet next week. Economist Pronab Sen said that growth will be muted for a while and he expects RBI to cut interest rates by 25 bps.
India is still among the preferred market within Asia for Nomura as it remains one of the fastest growing economies despite hiccups, says Head of Equities â€“ India Prabhat Awasthi.
Sonal Varma of Nomura and Ravikant Bhat of IDBI Capital believe that RBI's move to keep key rates unchanged was fair given that it did not see inflation going down at the moment.
The government‘s clampdown on black money by voiding Rs 500 and Rs 1,000 notes could think wealth destruction could be pretty meaningful, according to a former Reserve Bank Governor.
While the probability of a rate cut is slim in next four months, there are high chances of it in next 12 months, Pronab Sen, Country Director at IGC said.
Sonal Varma of Nomura Financial Advisory spoke to CNBC-TV18 on the buzz surrounding a rupee devaluation to help exports. Yesterday, a news report suggested the commerce ministry was pressing hard for the Indian currency to depreciate against the dollar.
Economic Affairs Secretary Shaktikanta Das said the government is committed to structural reforms and other measures mentioned in Budget. "The 4 percent inflation target has demonstrated the government‘s commitment to undertake reform measures."
Decoding Raghuram Rajan‘s commentary, Deutsche Bank Chief Economist (Asia, Global Markets Research) Taimur Baig said room for another rate cut is zero as there is an upside in inflation outlook.
CNBC-TV18 has constituted its own citizens monetary policy committee to shadow the Reserve Bank of India's policy. At the inaugural panel meet, members agreed that the RBI will keep its rates unchanged.
Overall, if the exit polls are accurate, then the state election results could marginally improve the BJP‘s seat tally in the Upper House, but the government will need to continue to build a consensus to push through legislative reforms in the Upper House, says Nomura
In this special pre-Budget series, Ideas for India, star panellists Rakesh Mohan, former Deputy Governor of Reserve Bank of India, Jehangir Aziz, Chief Economist at JPMorgan and Sonal Varma, Chief Economist at Nomura discussed the king of all Budget themes, the fiscal balance.
Given the robust supply side data, Sonal Varma of Nomura says GVA (gross value added) will be what the economists would be focusing on today when GDP (gross domestic product) numbers are released.
Expecting the business cycle to pick up in the coming two quarters, Varma noted that a number of factors such as policy efforts from both the RBI and government support the projections for higher growth.
Jahangir Aziz, Asia economic research, JPMorgan, says it is very hard to see a monetary policy committee where the governor doesn't have a veto power, but is responsible for monitoring inflation.
According to Varma, it is the combination of tight and right macro policies, weak demand and lower oil prices that have contributed to lower inflation.
Experts believe the central bank will pause for a while now before one can see any rate cut in the near-future.
Farmers in India are especially dependent on monsoon rains as over 50 percent of agricultural land in the country does not have irrigation facilities and where major products off the land of nation remains rice, soybean, sugar and cotton.
Thousands of garment, leather, handicraft, and gems and jewellery exporters have watched helplessly as the rupee has appreciated by a quarter against Europe's common currency over the past 12 months.
While on-the-ground prices in March were contained and are not yet a significant cause for inflation concern, the past four episodes of unseasonal rain suggest that there are upside risks to food inflation, and therefore CPI inflation, in the next three months, Varma added.
Sonal Varma, chief economist, Nomura does not see any rate cut in April. She believes the RBI has frontloaded the interest rate cuts in order to give more time to banks to respond going forward. She feels there is the probability of one more rate cut after that.