Crisil slashes GDP forecast to 5.5% on rupee weakness
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Crisil slashes GDP forecast to 5.5% on rupee weakness

Last Updated: Thursday, July 25, 2013, 20:18
 
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Crisil slashes GDP forecast to 5.5% on rupee weakness
Mumbai: Rating firm Crisil on Thursday revised downwards its GDP growth forecast to 5.5 percent this fiscal from its earlier estimate of 6 percent, citing reduced likelihood of monetary easing going forward due to falling rupee.

"We have lowered GDP forecast for FY 2014 by 50 basis points to 5.5 percent, given the reduced likelihood of interest rate cuts and weak momentum in both industry and services," Crisil Research President Mukesh Agarwal said.

In backdrop of the recent measures by RBI to absorb liquidity from the system to contain rupee volatility, Crisil said there is significantly diminished probability of a repo rate cut during the remaining part of the current fiscal.

Besides ADB, several brokerages like Nomura, BofA-ML, Deutsche Bank had last week lowered their GDP growth forecast and pegged it between 5 and 5.8 percent.

A Crisil report said challenges faced by Asia's third largest economy are mainly domestic as the global environment is more stable now than in 2009.

RBI has come out with a slew of steps to squeeze liquidity out of the system to stabilise rupee, during hit a record of low 61.21 on July 8.

The rupee is the worst performing Asian unit this year, losing close to 10 percent against the US currency this fiscal alone.

The rating agency, however, maintained its rupee level against the dollar at 56 on the back of net foreign inflows into the country.

RBI's measures will push up the inter-bank rates, impacting the cost of borrowing for banks, which in turn is likely to affect lending rates in the future, it said.

"These measures will push up the borrowing costs for banks. So, there is now little possibility of easing of lending rates in 2013."

Even if these measures are reversed later in the year, any cut in the repo rate will become difficult with headline inflation likely to rise in coming months due to a weak rupee, the rating outfit maintained.

PTI



First Published: Thursday, July 25, 2013, 20:18


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