India: Growth-inflation in a sweet spot for now – Nomura

According to analysts at Nomura, leading indicators imply faster Q1 growth of Indian economy, while lower inflation suggests unchanged rates.

Key Quotes

“Nomura’s heat-map of high-frequency data suggests the cyclical recovery remains well underway in Q1 2018. Unlike Q4 2017, when the uptick was led by external and investment demand, consumption indicators have improved in Q1; investment remains robust but external demand has moderated.”

“The Nomura Composite Leading Index increased sharply to 100.8 in Q1 2018 from an average of 99.2 in 2017 – a near seven-year high and a signal of a V-shaped recovery in non-agricultural GDP growth. We forecast overall GDP growth to rebound to 7.5% in 2018 from 6.4% in 2017.”

“A recent series of positive data surprises have continued to support the Nomura Economic Surprise Index for India. However, given the index mean-reverts, we believe there is still a higher probability of negative data surprises in coming months.”

“The Nomura RBI Policy Signal Index inched up to 0.04 in March from 0.01 in February but remains firmly in the “no change” zone. Lower headline inflation and good core internals offer the RBI space to leave rates and its stance unchanged on 5 April. However, the risk of hawkish rhetoric in Q2, when we expect inflation and growth to gain more momentum, still exists. Higher-than-expected minimum support prices (MSPs), a sharper rise in core inflation and higher oil prices suggest risks are shifting towards monetary policy tightening.”