Muted Diwali demand, GDP growth may fall to 5.8%: BofAML

 

MUMBAI, Nov 4: Despite efforts mounted by the

government, demand has been “muted” during the festive time,

and this leads to a 0.30 per cent cut in FY20 GDP growth

forecast to 5.8 per cent, a foreign brokerage said on Monday.

The Reserve Bank will cut key rates by a further 0.15

per cent in February review, over the 0.25 per cent expected

after the December meeting, Bank of America Merrill Lynch

said.

Economic growth has slipped to a six-year low of 5 per

cent for the June quarter and is expected to turn in lower

than that in the September quarter. Lack of consumption is

seen as one of the key factors pulling down growth.

The Government and RBI have been in tandem introducing

pro-growth policies with a view to revive growth. The RBI has

drastically cut its FY20 real GDP growth projection to 6.1 per

cent.

“The bad news is that still-high real lending rates

and relatively muted Diwali demand has led us to formalize a

30bp cut to our FY20 GVA growth forecast to 5.8 per cent,”

analysts at the brokerage said.

They said lending rate cuts are the only way out of

the present slowdown.

The only good news, it said, is that the central

bank’s forex interventions recently have created durable

liquidity in the system.

With official data showing that over 92 per cent of

the fiscal deficit gap being utilised within the six months of

the fiscal, and the 0.8 per cent impact because of the

corporate tax cuts, the brokerage said there is a likelihood

of 0.5 per cent on the fiscal deficit targets of the

government.

Apart from privatisation, which a slew of watchers

point out to, the analysts said there can be other ways of

grappling with the fiscal situation, which includes higher

bond buybacks by the central bank and taking on board the Rs

53,000 crore extra capital from RBI identified by the Jalan

committee.

In the event of a fall in foreign portfolio investment

flows, the RBI may also look at a cut in the cash reserve

ratio, or the amount of deposits parked with RBI by lenders,

for boosting the liquidity. (PTI)

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