RBI may lower growth projection

New Delhi: 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 per cent growth projection for this fiscal.

"Our FY12 Gross Domestic Product (GDP) growth forecast remains at 7 per cent 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 per cent from the earlier estimate of 8 per cent.

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 per cent in 2010-11. GDP growth during the April-June period of this fiscal was 7.7 per cent, 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 per cent by March 2012 – below the RBI projection of 7 per cent.

"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 per cent, while we think it could be lower at 6 per cent," it said.

While headline inflation remained stubbornly high at 9.72 per cent in September, inflation of manufactured products, which have a weight of around 65 per cent in the WPI basket, stood at 7.69 per cent during the month compared to 7.79 per cent 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.

Source: Financial Express