Repo and the Reverse Rates likely to lower by 50bp

The recent revisions to historic GDP data have been the source of much confusion, not least within theReserve Bank of India (RBI).
 
The current industrial production series is arguably not much use as a "sense check" of the GDP data as it is also due for rebasing. Instead, it is better to use unit measures of production. 

Output growth in a number of sectors, such as automobiles, remains weak by past standards. There were signs of a recovery in output in mid-2014, but this has since petered out. 

Growth in bank lending to the private sector has slowed to lows not seen since 2004.

After stripping out oil and gold, it is clear that imports generally have struggled, contracting for nearly two years between mid-2012 and mid- 2014.
 
Given that interest rates have been reduced by 50bp since the start of the year, it is clear that the RBI is focusing more on alternative indicators than on the new GDP data when gauging the state of the economy. 

Capital Economics notes in a report on Monday:

• We will be keeping a close eye on these indicators over the coming months. For now though, GovernorRajan still appears to be leaning towards loosening further to support a cyclical rebound. 
  
  
• We continue to expect the repo and the reverse rates to end the year at 7.00% and 6.00% respectively, both 50bp lower than where they are today.