Goldman Sachs today said in a statement that concerns about a slow down in economic growth caused by monetary policy tightening were overstated. "We see scope for further tightening to reduce effervescent demand."

The US private equity firm has launched a new index, financial conditions index (FCI), to help forecast India's business cycle and monetary policy stance.

The FCI uses interest rates, money supply, exchange rate and stock market as variables. In which interest rates have a 55 per cent weighting, while money supply has 29 per cent, exchange rate 12.5 per cent and stock market 3.5 per cent.

The FCI has showed that even after a spate of rate increases India's fundamentals remained supportive of growth. "The FCI suggests that financial conditions are not very tight when viewed in a historical context," the statement said.

Interest rates will have to be raised by 50 basis points and money supply growth moderated to 15.7 per cent from 20 per cent to reduce demand and bring down economic growth to a sustainable level of about 8 per cent, it said.

The economy is estimated to have expanded 9.2 per cent in 2006-07, with growth averaging 8.6 per cent in the last four fiscal years.

The central bank has been tightening policy to tame inflation running at above its target of 5-5.5 per cent, and to slow down loans growth of about 30 per cent.