The Hindu : Business : Citi, Goldman maintain growth forecasts

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Citi, Goldman maintain growth forecasts

Special Correspondent

Positive coordinated measures by
RBI, Government
‘RBI might have
to cut key policy
rates again’

NEW DELHI: The Citigroup has retained its projections on India’s GDP (gross domestic product) growth for the current fiscal and the next (2009-10) owing to what it described as “positive co-ordinated measures” by the Reserve Bank of India (RBI) and the Finance Ministry.

In a research note here, Citi said: “These measures are positive and we maintain our 2008-09 and 2009-10 GDP estimates of 6.8 per cent and 5.5 per cent respectively.”

Listing the various monetary and fiscal steps taken thus far — interest rate cuts, easier ECB (external commercial borrowing) norms and hike in FII investment limits — to stem the growth deceleration, the note prepared by Citi analyst Rohini Malkani said: “While we expect further monetary easing in the coming months, the Government has said this would be its last fiscal stimulus in 2008-09.”

Credit availability

The Citi note pointed out that while there were “many positive measures” on the fiscal front such as the Rs. 20,000-crore increase in government spending, four per cent cut in excise duty and additional borrowing of Rs. 30,000 crore by the States, “the key is now whether and how soon the policy rate cuts and liquidity injection get translated into lower and easier credit availability to the real economy.”

Echoing similar views, albeit in a different way, Goldman Sachs maintained that the recent steps taken to arrest the slowdown would not change the growth outlook for this fiscal and viewed that the RBI might have to cut key policy rates by 50 basis points yet again.

In its ‘Asia Policy Watch’ report, Goldman said: “While we welcome these counter-cyclical measures as a timely boost to confidence, we do not think that they will materially change the growth outlook.” India’s economy, it said, was likely to expand by 6.7 per cent in the current fiscal and 5.8 per cent in 2009-10.

“The fiscal and monetary measures announced will be positive for banks, NBFCs (non-banking finance companies), and infrastructure companies, and limit further downside to growth,” the report said.

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