From “gasping elephant” to “stagflation”, analysts have panned India’s quarterly growth of 5.3 per cent with some ominous language.
India’s growth in January-March was its weakest in nearly a decade, and sparked a new round of economic downgrades from investment banks, with Morgan Stanley cutting India’s forecasts for the second time in as many weeks.
Some analysts also say they now expect a rate cut as early as June 18, the next Reserve Bank of India (RBI) meeting.
It will still be a close call, though, as RBI has expressed concerns about continued inflationary pressures and has previously shown reluctance to ease until later in the year.
“There is rising hope for quick monetary policy action supporting the growth outlook, but we believe the current stagflation-type environment will make quick effective reduction of cost capital difficult,” Morgan Stanley analysts said in a report. The US investment bank cut its 2012 economic growth estimates to 5.7 per cent from 6.3 per cent, after already downgrading its forecasts about two weeks ago from an initial estimate of 6.9 per cent growth. Though Morgan Stanley does not expect a rate cut in June, others say the chances are growing more likely. Standard Chartered Bank cut its financial year 2013 gross domestic product (GDP) forecast to 6.2 per cent from 7.1 per cent, adding a 25 basis point rate cut in June was “now more likely than before.”The bank added the slowing in investment demand has spilled over to India’s consumption demand, the driving force behind the growth story.
CLSA said it “will probably” lower its below consensus GDP forecast of 6.3 per cent to around six per cent. This guarantees another few weeks of volatile domestic markets, at a time of intensifying worries about the euro zone, signs of slowing Chinese growth and continued doubts about the health of the US economy.
The RBI meeting is also scheduled for the Monday after the new elections in Greece on June 17. In a report titled, “gasping elephant”, HSBC warned of the challenges ahead, though it did not cut India’s forecasts.
“The poor growth number has increased chances of another rate cut, but elevated and sticky inflation limits the scope for aggressive rate cuts and suggest a need for continued caution,” HSBC said.