Bank of America Merrill Lynch (BofA-ML) today revised India’s GDP growth forecast lower to 5.5 per cent for this fiscal from 5.8 per cent earlier, as the Reserve Bank’s tightening measure is likely to push back lending rate cuts.
“We have cut our FY14 growth forecast to 5.5 per cent from 5.8 per cent earlier as RBI’s tightening will push back lending rate cuts,” BofA-ML said in a research note today.
The global brokerage firm in March had trimmed the growth forecast to 6 per cent and in June again revised the growth estimate to 5.8 per cent.
“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,” BofA-ML said, adding: “we have now removed the 30 bps (0.3 per cent) we had expected from softer rates.”
In a move to stem the continuing fall of the rupee, the RBI last night came out with a slew of measures, including hiking the lending rates for banks and sucking up of Rs 12,000 crore.
According to the global brokerage, the measures taken by the RBI yesterday were likely to push back softening of interest rates.
“We expect the RBI to cut rates by 25 bps (0.25 per cent) each in October and January, skipping September,” BofA-ML said.
The RBI is scheduled to hold its first quarter monetary policy review on July 30. The industry has been demanding a cut in the key policy rate to boost economic activities.
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) earlier.”
Some PSU banks such as Canara Bank and Bank of India recently cut lending rates. However, the country’s largest lender, SBI, said it cannot cut its base rate any further as it is already the lowest in the industry.