Bank of America-Merrill cut India’s growth outlook again

16 Jul 2013

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Bank of America-Merrill Lynch today cut its GDP growth forecast for India's fiscal year 2013-14 to 5.5 per cent from the earlier 5.8 per cent after the Reserve Bank of India tightened policy rates and took other measures to stem the downward spiral of the rupee.

BOFA said the tightening means there will be no lending rate cuts in the near future.

"We had earlier expected growth to stage a shallow recovery to 5.8 per cent on the back of better rains and lending rate cuts. We have now removed the 30 basis points (0.3 per cent) that we had expected from softer rates," wrote analysts at the bank.

The global brokerage firm had in March trimmed the growth forecast to 6 per cent and in June again lowered the estimate to 5.8 per cent.

In a move to stem the continuing fall of the rupee, the RBI on Monday night came out with a slew of measures, including hiking the lending rates for banks and sucking up of Rs12,000 crore of liquidity from the market.

''We expect the RBI to cut rates by 25 bps (0.25 per cent) each in October and January, skipping September'' but these expectations have not materialised, BOFA-ML said.

The RBI is scheduled to hold its first quarter monetary policy review on 30 July, when its latest interest rate policy will be revealed. The industry has been demanding a cut in key policy rates to boost production.

On the bank lending rate, BOFA-ML said, ''Cuts will also likely be scaled down to 25-50 bps (0.25-0.5 per cent) from 50-75 bps (0.5-0.75 per cent) 

Some government-owned banks like Canara Bank and Bank of India recently cut lending rates. However, the country's biggest lender, the State Bank of India, said it cannot cut its base rate any further as it is already the lowest in the industry.

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