Credit rating agency ICRA expects an extended pause for policy rates, with monetary easing delayed until at least early 2015. Reason: the expectation of below-average rainfall in conjunction with the structural factors that exert stickiness on food and non-food consumer price index (CPI)-based inflation would make it challenging to contain CPI inflation below 8 per cent by January 2015.

Sticky interest rates would in turn limit the improvement in consumption demand. This would consequently dampen a revival in the other sectors of the economy, said ICRA in a statement.

Investment revival unlikely In ICRA’s view, a broad-based investment revival is unlikely until there is a satisfactory resolution of concerns such as sector-specific issues, including fuel linkages for power, high leverage levels and tight liquidity faced by developers.

Further, concerns relating to asset quality of banks, and a stable political outcome emerging after the general elections need to be resolved satisfactorily.

Overall, ICRA expects GDP growth to improve somewhat to 5.0-5.5 per cent in 2014-15, factoring in a mild improvement in manufacturing growth and a pick-up in investment activity in the second half of FY15.

Moderate credit growth Based on an expectation of real GDP growth in excess of 5 per cent, ICRA expects bank deposit growth during FY15 to be in the range of 12.75-13.50 per cent. Similarly, credit growth is expected to remain moderate in FY15, with retail loans being the focus area of banks.

Lending to corporates may only pick up post a broad-based revival in economic growth, once the financial health of the corporate sector improves. Overall, ICRA expects credit growth during FY15 to be in the range of 13.50-14.50 per cent.

As relatively high inflation and a tight monetary policy are likely to result in domestic rates remaining substantially firmer than those in the advanced economies, the near-to-medium term outlook for foreign portfolio inflows into India remains favourable, according to ICRA.

FII inflows The magnitude of foreign institutional investor flows in the near term will be closely linked to global liquidity conditions, sentiments following the poll results and volatility in the exchange rate and equity markets.

In spite of the firm domestic borrowing costs, the rating agecny expects the high foreign exchange hedging cost to keep external commercial borrowings (ECBs) as an attractive option only for companies with natural forex hedge.

Even the Foreign Currency Convertible Bond (FCCB) route to raise overseas funds is unlikely to turn attractive in the near term.