DBS revises India GDP forecast for FY20 down to 6.8%
Commodity Online | June 20 2019
UPDATED 18:18:14 IST

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DBS Bank has revised India's GDP growth for fiscal year 2020 downwards to 6.8% year-on-year from 7% projected earlier, citing headwinds for exports amidst challenging trade outlook.

"Growth headwinds swiftly turn attention to the likely policy response. We expect monetary policy to do much of the heavy lifting, given limited fiscal leeway," the bank in its report on the Indian economy.

The Reserve Bank of India's policy stance was changed from neutral to accommodative, opening the door to further easing, wrote Radhika Rao, Economist at DBS Group Research, pointing out the 75 bps repo rate cut so far this year.

"We revise down our real GDP forecast for FY20 to 6.8% year-on-year versus 7% earlier," the bank said.

"A negative output gap will keep demand-side inflationary risks in check, with core inflation catching down with headline consumer price inflation (core at 4.2% in May versus 6% average in October-December 2018).

"We expect inflation to remain sub-target this year (3.8% year-on-year versus 3.4% in FY19)... In the face of slowing growth and sub-target inflation, the need to hanker over a wide real rate buffer has reduced," said Rao.

Global cues have also played into the RBI's hands; easing US yields, a dovish US Fed and cautious European Central Bank (ECB), lower the hurdle for the Asian central banks, including India, to embark on further easing, believes the DBS Economist.

Oil prices have moderated from recent highs. Notably, the current bout of softening global yields is different from the last in 2012-2013, with regards to how India is placed.

Back then, the rupee was under pressure, and inflation was in double-digits, making it a challenge for the central bank to loosen policy levers, Rao pointed out.

"This time around, the rupee is only marginally weaker on the year, while inflation is well below target. Given this mix, we factor in another 50bp worth cuts in FY20, with the Repo rate to plateau at 5.25%," said Rao.- PTI

 

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