JPMorgan cuts India growth forecast, sees rate cuts

MUMBAI Mon Nov 17, 2008 2:07pm IST

A labourer walks back to his house after working at a construction site in Chandigarh in this November 2005 file photo. JPMorgan has cut its forecast for India's economic growth in 2008/09 and 2009/10, it said in a note on Monday, adding that it expects aggressive rate cuts by the Reserve Bank to support the growth momentum. REUTERS/Ajay Verma

A labourer walks back to his house after working at a construction site in Chandigarh in this November 2005 file photo. JPMorgan has cut its forecast for India's economic growth in 2008/09 and 2009/10, it said in a note on Monday, adding that it expects aggressive rate cuts by the Reserve Bank to support the growth momentum.

Credit: Reuters/Ajay Verma

Related Topics

MUMBAI (Reuters) - JPMorgan has cut its forecast for India's economic growth in 2008/09 and 2009/10, it said in a note on Monday, adding that it expects aggressive rate cuts by the Reserve Bank to support the growth momentum.

The Indian economy may grow 6.7 percent in the year ending March 2009, JPMorgan said, down from its earlier forecast of 7 percent. The economy may grow 6.2 percent in 2009/10, down from its previous estimate of 6.8 percent, the bank said.

"The moderation in exports, small business output, and real estate related activity could crimp urban consumer spending as employment and household income growth slackens," JPMorgan said in the note.

India's economy grew at an annual rate of 9 percent or more in the past three years, second only to China among the major economies. Last month, the Reserve Bank cut its estimate for FY09 growth to 7.5-8.0 percent, but analysts expect it to be lower.

Other global financial groups like Citigroup, Goldman Sachs, Morgan Stanley and Nomura have also lowered their estimates for India's GDP growth over the past one month.

"As global and domestic financial conditions are likely to ease in the rest of this fiscal year and over the course of next year, some recovery is on the cards... but it is unlikely to completely reverse the trend," JPMorgan said.

"Consequently, investment growth - the major driver of activity growth in India over the past five years - will likely moderate." The Reserve Bank could lower rates again if liquidity conditions do not ease sufficiently or signs of further economic slowdown emerge, JPMorgan said, adding that the drop in inflation to single-digit levels allows for easier monetary policy.

It expects the Reserve Bank to cut its repo rate, at which it lends funds to banks, by another 50 basis points and along with an identical reduction in reserve requirement by its January policy review.

"Alternatively, the RBI could cut the repo rate by 100 basis points - in which case the reverse repo would also be reduced 50 basis points in order to keep the gap between the repo and the reverse repo rates at 100 basis points," it said.

Over the past month, the Reserve Bank has reduced the repo rate by 150 basis points to 7.5 percent, the cash reserve ratio by 350 basis points to 5.5 percent, and the ratio of deposits banks must invest in bonds, by 100 basis points to 24 percent.

"If needed, there is also scope to reduce the SLR (statutory liquidity ratio) further by another 150-200 basis points, at least temporarily," it said.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS EXCLUSIVE

REUTERS SHOWCASE

Modi In U.S.

Modi In U.S.

Obama, Modi work to deepen improving U.S.-India ties  Full Article | Full Coverage 

Factory Activity

Factory Activity

Factories expand at slowest pace this year in September  Full Article 

Monetary Policy

Monetary Policy

RBI not biased towards either raising or cutting rates - Rajan  Full Article 

Asia & Europe

Asia & Europe

Weak demand hits factory activity across Asia, Europe  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage