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Rediff.com  » Business » BofA-ML trims India's growth forecast to 5.5%

BofA-ML trims India's growth forecast to 5.5%

July 16, 2013 13:33 IST

Indian flagBank of America Merill Lynch on Tuesday revised India's gross domestic product growth forecast lower to 5.5 per cent for this fiscal from 5.8 per cent earlier, as Reserve Bank of India'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 on Tuesday.

The global brokerage firm in March had trimmed the growth forecast to 6 per cent and in June again it 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 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 (Rs 120 billion).

According to the global brokerage, the measures taken by RBI on Monday are 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 key policy rate to boost economic activities.

On 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 like Canara Bank and Bank of India have recently cut lending rates. However, the largest lender of the country SBI has said it cannot cut its base rate any further as it is already the lowest in the industry.

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