Economy gathering momentum

Indian GDP growth hit a five-quarter high in Q4 2017, and various indicators suggest that the economy strengthened further in the first quarter of 2018. Industrial production growth last quarter may have been stronger than at any time since 2011, while the manufacturing PMI remains upbeat. Strong growth in domestic air passenger traffic, vehicle sales and production of consumer durables suggests that private consumption growth has also accelerated. With the economy gathering momentum, capacity utilisation will continue to tighten. This should lift underlying price pressures. Indeed, core consumer price inflation rose to its highest since 2014 in March. All of this reinforces our view that monetary tightening is likely in the second half of the year.