Political risks to rate cut, what India's women economists predict for 2019

Slower growth and benign inflation will boost chances of back-to-back interest rate cuts by the RBI in April

India’s economy, among the world’s fastest growing, faces risks from a global slowdown and political instability after a national election. That’s the view of the top women economists covering the nation.

Slower growth and benign inflation will boost chances of back-to-back interest rate cuts by the Reserve Bank of India in April, according to the three analysts, who are ranked among the most accurate female forecasters in Bloomberg surveys on growth and inflation. The rankings are based on two years of contributed surveys.

Political risks are also intensifying as tensions with Pakistan mount and Prime Minister Narendra Modi’s re-election bid gets more heated.

Here’s a look at what the economists expect for the rest of the year:

Sonal Varma

Chief India Economist, Nomura Holdings Inc.

Top woman forecaster for quarterly gross domestic product

Growth: Weaker global demand will affect everything from India’s exports to manufacturing, Varma said, while tight financial conditions will hurt domestic demand and political uncertainty will delay investment decisions. She forecast growth of 6.8 percent in the fiscal year starting April versus Reserve Bank of India’s 7.4 percent.

Interest Rates: “The Reserve Bank reaffirmed its focus towards headline inflation and its willingness to support growth, which suggests the February policy cut was not a ‘one and done’,” Varma said. Based on her assessment of slower growth and inflation remaining below RBI’s projection, she expects another rate cut in April of 25 basis points.

Elections: If India can maintain political stability after the elections, economic reforms will continue, no matter who forms the government, Varma said. “Of course, there are nuances in terms of the economic policy (left, right and center) and differing market perceptions of a good versus a bad election outcome.”

Madhavi Arora

Economist, Edelweiss Securities Ltd.

Top forecaster for annual GDP

Growth: Against the backdrop of slower global growth, structural and cyclical bottlenecks, a lack of private investment, and tight domestic liquidity, India is unlikely to see much growth momentum as it heads into a new financial year on April 1, said Arora. She predicts 7.2 percent growth in the coming fiscal year from an estimated 7 percent this year.

Interest Rates: The near-term trajectory of inflation is comfortably undershooting RBI’s estimates, she said. “This, in conjunction with an assertive change in the RBI’s tone, adds credence to our call of one more front-loaded 25 basis-point cut in April. However, further easing beyond April will see the bar set a tad higher.”

Elections: A frail mandate for Modi or a hung parliament will materially add to near-term macro and markets uncertainty, she said. “While market expectations are mostly for the Bharatiya Janata Party to lose some seats in the house, while remaining the largest party, an outright loss (or a hung parliament) could have a significant negative impact on rupee.”

Shubhada Rao

Chief Economist, Yes Bank Ltd.

Top woman forecaster for consumer price inflation

Growth: Unlike Varma and Arora, Rao is optimistic on India’s growth outlook. She expects the “momentum to pick up in the second half of next financial year as the current set of headwinds morph into tailwinds.” Improvement in liquidity, monetary support, income support to farmers and a normal monsoon would be growth drivers, she said. Trade and geopolitical risks are “potential dampeners.”

Interest Rates: With a benign inflation trajectory, Rao expects the RBI “to use this opportune window to support growth by reducing the repo rate by another 25 basis points in the upcoming policy.”

Elections: Another term for the ruling party will provide much-needed policy continuity, Rao said. If elected to power again, Modi will need to complete his unfinished economic agenda: mitigate rural distress, double farmer’s incomes, create jobs and bring land and labor reforms, she added.