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HSBC pegs Q2 growth at 6.3%; sees food, fuel inflation as potential risks

On inflation, it warned food inflation could be joining core and fuel in becoming a potential upside risk in the coming months

Press Trust of India  |  Mumbai 

hsbc

British brokerage Tuesday said will come in at 6.3 per cent for the second quarter, and risks to will prevent the Reserve from tinkering its policy rates at the next review.

Growth data for the July-September period is expected to be released on Thursday, while the Reserve will be coming out with a bi-monthly review on December 6.


"While recovery is expected to be only modest, risks are edging higher," economists at the brokerage said.

In a note, they said gross value added (GVA) growth will come at 6.3 per cent for the second quarter, which is higher than the three-year-low of 5.7 per cent clocked for the preceding three months, but much lower than the economy's potential.

It said agricultural growth will moderate on low production of key crops and a drag from animal husbandry to its long-term average, while industrial growth will go above 4 per cent as manufacturing is picking up pace.

On inflation, the note warned food could be joining core and in becoming a potential upside risk in the coming months.

After slumping in June, core climbed back to over 4 per cent and is expected to remain sticky or accelerate further as well, on items like household goods and services, health, personal care, it said.

It pointed out that is also a risk, given the limited fiscal room to cut the high duties on fuels.

"No reason to tweak policy rates, till clear signs emerge. Given risks are tilting on the upside, the will keep the repo rate on hold at 6 per cent in the foreseeable future, giving primacy to the target," it said.

It said an rate cut will be "unwarranted" given that expects growth to pick up to 7 per cent level in the second half of the fiscal, while a hike in rates will be "detrimental" to the "fragile" recovery.

First Published: Tue, November 28 2017. 16:13 IST
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