It projected average WPI-based inflation to decline to 5.5 per cent in FY'15, from 5.9 per cent in 2013-14, which will lead to monetary easing.
"We expect the pressure on food prices to ease in FY15 on the back of normal monsoons. With the expected moderation in inflation in FY'15, the agency expects RBI's policy stance to gradually shift towards monetary easing. We expect a 0.50 per cent reduction in repo rate in its base case," India Ratings said.
It further projected that the fiscal deficit will narrow to 4.5 per cent in FY'15 as the new government, post the general elections, will make efforts to adhere to fiscal consolidation.
For 2013-14, it said the fiscal deficit will remain closer to the budgeted level of 4.8 per cent.
It said the restrictions on gold imports and stable oil prices would likely restrict import growth and restrict Current Account Deficit to 2.2 per cent of GDP in FY'15.
Exports are likely to continue to grow in FY15 due to an economic recovery, though still fragile, in the US and eurozone.
It projected the rupee to settle at around 56-57 to a US dollar by the end of March 2015.
