BofAML Cuts India GDP Growth Forecast To 5.8% In 2019-20
The government and the RBI have been in tandem introducing pro-growth policies to revive growth. The central bank has cut its real GDP growth forecast to 6.1 percent for 2019-20.
"The bad news is that still-high real lending rates and relatively muted Diwali demand has led us to formalise a 30-basis-points cut to our FY20 GVA (gross value added) growth forecast to 5.8 percent," BofAML analysts said, adding that repo rate cuts are the only way out of the present slowdown.
The only good news, they said, is RBI’s recent interventions in the forex market which has created durable liquidity in the system.
BofAML also sees India breaching its fiscal deficit target by 0.5 percentage points, accounting for a 0.8-percentage-point impact of the corporate tax cuts. The government had in Union Budget 2019-20 set itself a fiscal deficit target of 3.3 percent of the GDP; by September, it had covered 92.6 percent of it.
But the brokerage believes the government can ease its fiscal stress by focusing not just on privatisation of public sector undertakings. Higher bond buybacks by RBI and taking onboard the Rs 53,000 crore surplus capital from the central bank can be considered.
RBI may also look at a cut in cash reserve ratio, or the amount banks park with the regulator for borrowings, to boost liquidity in the event of lower foreign inflows.