GDP may moderate from 7.8% to 7.2% in second half of 2018: Nomura

The Indian economy is likely to have witnessed solid economic growth in the April-June quarter but leading indicators suggest a slowdown in the coming months, says a Nomura report.

According to the global financial services major, India's economic recovery has peaked and growth rates are likely to get constrained in the second half of this year.

"Our proprietary indicators suggest the inflection point for the cyclical recovery may just be around the corner," Nomura said in a research note.

India's gross domestic product (GDP) grew at the fastest pace in seven quarters at 7.7 per cent in January-March quarter on robust performance by manufacturing and service sectors as well as good farm output.

The report said tighter financial conditions, slowing global growth and adverse terms of trade will start to constrain growth in second half of 2018. 

Nomura expects GDP growth to peak in April-June quarter and then moderate to 7.2 per cent in the second half of 2018 from around 7.8 per cent in first half.

On Reserve Bank of India's monetary policy stance, the report said the current macroeconomic conditions merit a 25 bps rate hike in the forthcoming policy meeting on August 1.

"For now, strong core momentum, sticky global oil prices and higher minimum support prices suggest conditions are ripe for another 25 bp rate hike in August. We expect a long pause on policy rates thereafter as growth and inflation slow," Nomura said.

In June, the Reserve Bank of India had upped its retail inflation projection by 0.30 per cent and kept the policy stance in the neutral zone, even as it hiked the key rate by 0.25 per cent to 6.25 per cent.