RBI may have to lower growth projection again: Goldman
Global banking giant Goldman Sachs has said there is downside risk to the Indian economy and the Reserve Bank may have to further lower the 7.6% growth projection for this fiscal.india Updated: Oct 30, 2011 10:37 IST
Global banking giant Goldman Sachs has said there is downside risk to the Indian economy and the Reserve Bank may have to further lower the 7.6% growth projection for this fiscal.
"Our FY12 Gross Domestic Product (GDP) growth forecast remains at 7% with downside risks and we think the RBI may need to still revise its growth forecasts downwards," said Goldman Sachs Global ECS Asia Research in Asia Policy Watch.
In its second quarterly review of credit policy earlier this month, RBI had revised downward its growth projection for the Indian economy to 7.6% from the earlier estimate of 8%.
It had said that slower global growth will have an adverse impact on domestic growth, particularly on industrial production, given the rising inter-linkages of the Indian economy with the global economy.
The Indian economy had expanded by 8.5% in 2010-11. GDP growth during the April-June period of this fiscal was 7.7%, slowest in six quarters.
"While growth in advanced economies is already weakening, there is a risk of sharp deterioration if a credible solution to the euro area debt problem is not found," RBI had said.
Besides inflation, RBI said, slowdown in project investments is also impacting growth.
The Goldman report said, however, that inflation in the country will moderate to 6% by March 2012 -- below the RBI projection of 7%.
"There is some comfort coming from de-seasonalized sequential quarterly WPI data which suggest that inflation momentum has turned down... The RBI's end-March Whole Price Index inflation forecast remains at 7%, while we think it could be lower at 6%," it said.
While headline inflation remained stubbornly high at 9.72% in September, inflation of manufactured products, which have a weight of around 65% in the WPI basket, stood at 7.69% during the month compared to 7.79% in August.
RBI has hiked the key policy rates 13 times since March 2010 to tame demand and curb inflation, including an increase of 25 basis points in interest in its review last week.
"We continue to think that with inflation and growth likely to surprise on the downside, the RBI will likely cut interest rates in April 2012, and we have built in 100 basis points in rate cuts in 2012-13," Goldman said.