Economy to gradually recover in 2015; FY15 GDP at 5.5%: Nomura

Says RBI to cut rates by 25 bps in next policy

A gradual recovery is underway for the Indian economy and the country is expected to clock a GDP growth of 5.5% in the current fiscal and 6.6% in FY16, says a Nomura report.

According to the global financial services firm, the recovery is likely to get support from easing inflationary pressures and measures towards economic reforms.

India's manufacturing PMI rose to a two-year high in December, led by rise in both domestic and export new orders, while output growth from six core infrastructure industries rose 6.7% y-o-y in November -- all suggesting a likely rebound in November industrial production, the Japanese brokerage firm said.

"We expect the economy to gradually recover in 2015 with real GDP growth of 5.5% y-o-y in FY15 (year-end March 2015) and 6.6% in FY16," Sonal Varma, India economist at Nomura, said in a research note.

On prices, the report said input costs have moderated due to lower commodity prices, which along with still-subdued demand, has kept output prices stable.

Nomura, however, noted that the period of a positive base effect on CPI inflation is over and CPI inflation is expected to rise from 4.4% y-o-y in November to 5.5-6.0% in the next three months, before moderating back towards 5% after March.

"Overall, we expect CPI inflation to undershoot the RBI's January 2016 target of 6%. We pencil in a 25 bps repo rate cut in both April and June (to 7.5%), followed by a pause," Varma added.

RBI Governor Raghuram Rajan in the monetary policy review meet in December, 2014 had kept interest rate unchanged, saying that a shift in stance is 'premature' but hinted that a cut may come early next year if inflation continues to ease and government acts on the fiscal side.

Accordingly, the repo rate continues to be at 8% while the cash reserve ratio has also been retained at 4%.