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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