Reduced US Fed easing likely to help India: BofA Merrill Lynch
The minutes of the Fed's December meeting, however, revealed some "worries" about continued quantitative easing.
About half of its officials expressed the view that quantitative easing could be scaled back or stopped during 2013, if the economy improves and unemployment figure drops.
The Federal Open Market Committee (FOMC) voters in 2013 are likely to be more dovish than in 2012 and accordingly BofA Merrill Lynch expect the Fed to put in around USD 85 billion a month through 2013.
"We believe that reduced Fed easing would contain global commodity price inflation, reduce 'imported' inflation and enable the RBI to ease lending rates to support growth," BofA Merrill Lynch India Economist Indranil Sen Gupta said in the research note.
Moreover lower-to-stable oil prices would help narrow twin deficits and the reduced macro risks are likely to sustain capital inflows even if global liquidity reduces due to lower quantitative easing, BofA Merrill Lynch said.
On RBI's tight monetary policy, the report said, the tightening has increasingly turned counterproductive in hurting growth rather than denting inflation, which is largely
driven by high global liquidity rather than domestic demand.
Reserve Bank has resisted a widespread call for the growth-propping rate cuts for some time now, citing the elevated inflation.
In the mid-quarter monetary policy review on December 18, RBI kept key interest rates unchanged.
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