Source: Economic Times

India is heading towards growth with macroeconomic stability and its economy is likely to expand at 5.5 per cent in the current fiscal, Japanese brokerage firm Nomura said today.

“We are positive about India’s growth. Our medium term view is that macro policies – both the policies that RBI is likely to follow and reforms that the Government is likely to announce – will lead to lesser volatility going forward and more macro stability,” Nomura Economist (India) Sonal Varma told reporters here.

She expects Asia’s third largest economy to grow at 5.5 per cent in FY15 and at around 6.5 per cent in FY16.

Varma said although there were concerns about growth not really picking up, as indicated by volatile factory output numbers and weak credit expansion, some of the indicators suggest India was already in the initial stage of business cycle recovery.

She said the government’s focus on clearing investment projects has reduced policy uncertainty and expects the investment cycle to pick up soon.

“We are calling 2015 a Goldilocks year (high growth & low inflation) for India because while we are still in the positive direction on growth, we think inflation will continue to moderate. So, this is not another business cycle where inflation will pick up.”

The global financial services major expects the price rate to ease and hover around 5-5.5 per cent next year. “The ease in inflation will be largely on account of domestic factors, particular fall in rural wages,” Varma said.

She said low inflation will provide RBI some room to cut policy rates. “Our base line expectation is the RBI will cut rates by 50 basis points in the first half of 2015. We are pencling in April and June as the likely timing.”

CAD is likely to be at sustainable levels of around 2 per cent of GDP this fiscal. The rupee is likely to be at 61.3 per dollar by end-2014 and 62 level by end-2015, she said.

According to Nomura, the Reserve Bank has likely reduced its foreign exchange intervention stance.

“Authorities are backing off from there (forex) intervention stance because we think they have accumulated the reserves they wanted to accumulate,” Nomura MD and Head of FX Strategy (Asia ex-Japan) Craig Chan said.