India's GDP is likely to have grown at a much slower-than-expected pace of 5 per cent in October-December period and may see a 6 per cent growth in the following quarter due to a slowdown in manufacturing and services sectors post demonetization, says a HSBC report.
According to the global financial services major, activity data across manufacturing and services as well as consumption and investment have clearly taken a hit after November 8, 2016, when the government announced scrapping old 500/1,000 rupee notes.
"We expect GDP to grow 5.0 per cent in October- December quarter and 6.0 per cent in January-March quarter, about 2 percentage points lower than we had expected before the demonetization was announced," HSBC said in a research note.
Post the March quarter, the economic growth is expected to normalize gradually towards the 7 per cent level, it added.
"Thereafter (after January-March period), we expect growth to normalize gradually towards the 7 per cent ballpark, but remain shy of the 7.5-8 per cent range in FY18, due to adjustment costs that businesses and consumers face, in the process of formalization and digitization," the report added.
The Reserve Bank is expected to adopt an accommodative policy stance to spur growth."On the back of our expectation of lackluster investment growth, we expect the RBI to deliver a 25 bps rate cut in the February meeting," HSBC said, PTI reports.
On December 7, the central bank kept interest rate unchanged despite calls for lowering it and also lowered the economic growth projection by half a percentage point to 7.1 per cent in the first policy review post demonetization. The central bank will hold its next monetary policy meet on February 8.