The economy will growth 7.5 per cent level in the first half on a lower base, but will slip down to 7 per cent in the second half of the next fiscal, says a foreign brokerage. Even with the jump, it will continue to trend 1 percentage point lower than the potential growth of the economy, analysts at the Bank of America Meryll Lynch said in a report today. “Although growth will pick up to 7.5 per cent in the April-September quarters, on base effects of note-ban/GST in FY18, it should slip to 7 per cent in second half of FY19. Even so, we point out that growth will still be 1 percentage point below our estimated 7 per cent potential in the old GDP series,” it added. The government is expecting growth to rise to 7-7.5 per cent in the next fiscal. Generally, a rate cut is seen as a measure to boost growth but with price rise risks firming up, many observers wonder if the central bank would be able to deliver the rate cut given its medium term inflation target of 4 per cent.
The Reserve Bank will err on the side of caution and go in for a status quo in the rates with a hawkish tone at the policy review on Wednesday. On inflation, which went up to 5.2 per cent in December, it said the headline number will go down to 5 per cent for January and added the central bank will “see through” the rise in inflation, growth and credit offtake as they are being driven by a low-base. At present, the fears on inflation are “overdone” and the fall in onion prices, after tomatoes suggests the same.
If the ‘La Nina’ factor softens inflation, the RBI will cut rates in August,they said. It can be noted that the brokerage’s earlier view was for a cut in April. The Budget announcement of hiking minimum support prices for agri commodities will have a limited impact on inflation as the revised prices are less than the market prices of commodities, it said.