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18:29
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Foreign brokerage Bank of America-Merrill Lynch (BofA-ML) said on Monday that it expects the Reserve Bank of India (RBI) to reverse its recent liquidity tightening moves only by October and warned that prolonging them may have an adverse impact on GDP growth which could slip to a low of 4.8 per cent.
Stating that it sees the RBI reversing its tight liquidity measures only by October, the brokerage said if that does not happen, it "will adversely impact credit pick up in the busy credit season that begins from October to March, thereby having consequences on the growth front".
It said that in 1998, the then RBI Governor, Bimal Jalan, had reversed similar measures undertaken, in eight weeks.
"GDP growth can go down to 4.8 per cent, lower than 5 per cent last year, if the lending rates go up as a result of the RBI steps," BofA-ML said.
In two sets of announcements last month, the RBI had taken a string of liquidity tightening measures aimed at curbing speculation on the depreciating rupee, which has lost nearly 12 per cent against the dollar since the start of FY14.
The unconventional steps included limiting banks' overnight borrowing to 0.5 per cent of their net demand and time liabilities, more sales of government bonds and raising the interest rate on the marginal standing facility for banks.
They had the desired impact on the rupee initially, but the domestic unit has been reporting losses since the July 30 announcement of the quarterly monetary policy review.
These steps hardened the rates in the money market. Banks are holding on to the rates for now, but they have indicated that eventually they might be forced to pass it onto borrowers. Private lender Yes Bank has already raised its base rate by 0.25 per cent.
BofA-ML said the RBI will sacrifice up to 0.50 per cent on the growth front to the ongoing battle to reduce the fall in the rupee and keep the domestic currency within the 58-62 band to a dollar.
The brokerage has already cut its FY14 growth forecast by 0.50 per cent to 5.3 per cent and FY15 GDP estimate by a similar measure to 6.3 per cent.
In the best case scenario, it said a rollback by the RBI in August, coupled with good monsoons, monetary easing and dollar inflow through a sovereign or a NRI bond issue, has the potential to push growth to 5.8 per cent in FY14.
DISCLAIMER THIS IS A NON-PROFESSIONAL BLOG ,SHARING TRADING IDEAS FROM OTHER BLOGS AND MY PURPOSE ONLY. NO POSTS ARE TO BE TAKEN AS TRADING RECOMMENDATIONS.VISITORS ARE REQUESTED TO CONSULT THEIR QUALIFIED FINANCIAL ADVISORS FOR SAFE TRADING .OUR WEBSITE IS NOT RESPONSIBLE FOR YOUR TRADING RISK.THIS WEBSITE EDUCATIONAL PURPOSE ONLY.
Stating that it sees the RBI reversing its tight liquidity measures only by October, the brokerage said if that does not happen, it "will adversely impact credit pick up in the busy credit season that begins from October to March, thereby having consequences on the growth front".
It said that in 1998, the then RBI Governor, Bimal Jalan, had reversed similar measures undertaken, in eight weeks.
"GDP growth can go down to 4.8 per cent, lower than 5 per cent last year, if the lending rates go up as a result of the RBI steps," BofA-ML said.
In two sets of announcements last month, the RBI had taken a string of liquidity tightening measures aimed at curbing speculation on the depreciating rupee, which has lost nearly 12 per cent against the dollar since the start of FY14.
The unconventional steps included limiting banks' overnight borrowing to 0.5 per cent of their net demand and time liabilities, more sales of government bonds and raising the interest rate on the marginal standing facility for banks.
They had the desired impact on the rupee initially, but the domestic unit has been reporting losses since the July 30 announcement of the quarterly monetary policy review.
These steps hardened the rates in the money market. Banks are holding on to the rates for now, but they have indicated that eventually they might be forced to pass it onto borrowers. Private lender Yes Bank has already raised its base rate by 0.25 per cent.
BofA-ML said the RBI will sacrifice up to 0.50 per cent on the growth front to the ongoing battle to reduce the fall in the rupee and keep the domestic currency within the 58-62 band to a dollar.
The brokerage has already cut its FY14 growth forecast by 0.50 per cent to 5.3 per cent and FY15 GDP estimate by a similar measure to 6.3 per cent.
In the best case scenario, it said a rollback by the RBI in August, coupled with good monsoons, monetary easing and dollar inflow through a sovereign or a NRI bond issue, has the potential to push growth to 5.8 per cent in FY14.
DISCLAIMER THIS IS A NON-PROFESSIONAL BLOG ,SHARING TRADING IDEAS FROM OTHER BLOGS AND MY PURPOSE ONLY. NO POSTS ARE TO BE TAKEN AS TRADING RECOMMENDATIONS.VISITORS ARE REQUESTED TO CONSULT THEIR QUALIFIED FINANCIAL ADVISORS FOR SAFE TRADING .OUR WEBSITE IS NOT RESPONSIBLE FOR YOUR TRADING RISK.THIS WEBSITE EDUCATIONAL PURPOSE ONLY.
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