Lehman Brothers Sees 50 Basis Points Cut In Bank Rate
On the eve of the announcement of the busy season credit policy, Lehman Brothers has predicted a 50 basis point cut in the bank rate and a corresponding cut in the prime lending rate.
In its latest outlook on India, the report said: depending on the strength of the economic rebound, a further cut of 50 basis point in the bank rate (and by implication lending rates) is possible this year. But that should just about be the extent of the fall in lending rates. The report also states that the rupee would remain stronger than Rs 37.50 till December end. These expectations are based on the assumption that capital inflows will continue to remain buoyant.
According to Lehman Brothers, while credit offtake has been growing, the government is saddled with the problem of growth in reserve money on account of a rise in net foreign assets. The countrys foreign exchange reserves have risen by nearly $ 3.7 billion in the current fiscal. The problem lies with the net foreign asset component of reserve money growth for that is growing at more than 30 per cent and is threatening monetary control. For now, inflows are being sterilised which is putting an upward pressure on yields, the report says.
Lehman Brothers has forecast a 20 per cent export growth and 25 per cent rise in imports in the current fiscal year. This is vastly different from the commerce ministrys projection of a 10 per cent growth in exports.
On the balance of payments front, the report estimates the current account deficit to be 1.9 per cent of gross domestic product (GDP) by the end of the current fiscal year, which is different from the RBIs and finance ministrys projection of 1.5 per cent. The report has projected a pick-up in the annual inflation rate in the latter half of the current fiscal.
The inflation rate is unlikely to remain below the 4 per cent mark or even at the 5.4 per cent clip it has averaged since April 1997. Our forecast is for the wholesale price inflation rate to average around 7.5 per cent for the year and for the consumer price inflation rate to average about 9 per cent, the report says.