New Delhi: India’s gross domestic product (GDP) growth is expected to slow to 6.7% in the January-March quarter of this fiscal year as overall activity is yet to bounce back to levels seen prior to demonetisation, says a Nomura report.

Though the adverse growth effects of demonetisation are waning, the pace of improvement is gradual and not yet broad based, the Japanese financial services major said. “We expect GDP growth to slow from 7 per cent in October-December 2016 to 6.7 per cent in January-March 2017 as activity is yet to recover to levels seen prior to demonetisation," Nomura said in a research note.

It further said, “We expect growth to bounce back to an average of 7.3 per cent in the second half of 2017 and 7.7 per cent in 2018. Meanwhile, the Nomura RBI Policy Signal Index (NRPSI), that tracks the apex bank’s policy decisions, rose to 0.08 in March from 0.01 in February.

“The rising positive NRPSI value suggests that the next move will likely be a hike, although it is not imminent," it said. “A pick-up in headline CPI inflation, better global conditions (exports) and narrowing interest rate differentials (with the US) have lowered the probability of a rate cut and increased the probability of a hike," it added.

In the 8 February policy review meet, the Reserve Bank of India (RBI) kept key interest rates unchanged at 6.25% and said it is awaiting more clarity on the inflation trend and the impact of demonetisation on growth. The next meeting of the monetary policy committee (MPC) is scheduled for 5-6 April.

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