India GDP growth expected to dip to 6.1%

Good news domestic demand is expected to stay robust with a record-low 5.75% policy rate.

According to DBS, GDP figures are on tap today and this will set the tone for the monetary policy meeting scheduled for Thursday. GDP growth is expected to reach 6.1% YoY in 2Q, compared to 6.3% in 1Q. This slowdown is to be expected given significant external headwinds in the last few months.

Here's more from DBS:

Depressed commodity prices and weak external demand have impacted on export growth. In 2Q, the nominal export value fell by 9.1% YoY. Exports will likely stay weak in the coming quarters amid a lackluster global economy.

In contrast, domestic demand should stay resilient. With the policy rate at a record low of 5.75%, credit growth has been well-supported. Other high frequency indicators such as car sales have also remained robust, supported by rising wealth and wage growth. In terms of investment, there have been no signs of slowing thus far. Data from the investment coordination board (BKPM) indicated that the value of domestic investment rose by 9.6% YoY in 2Q while the value of foreign direct investment rose by a whopping 30.4%. This has also been reflected in the import breakdown. Although consumer imports have been going sideways since 3Q11, raw material and capital goods imports have been trending up. Private consumption and fixed capital formation will be the main drivers of growth.

In 2H, GDP growth is expected to continue softening on the back of weak external demand. However, the central bank (BI) does not have much leeway to cut the policy rate and is expected to keep an eye on external imbalances. With the trade balance dipping into negative territory for three consecutive months (April-June), the current account has also worsened accordingly. Managing the widening current account deficit will be important in a period of volatile portfolio flows. We think that BI is likely to maintain the policy rate at 5.75% through the rest of the year.