Mumbai: The Indian economy may grow at 7.1% in the financial year ending March from an earlier forecast of 6.8% driven by better industrial growth prospects, HDFC Bank said in a recent note.
The bank now expects industrial growth in 2009-10 fiscal year to be 9% from 8.6% earlier after industrial output grew at its fastest pace in two years in November at 11.7%.
“We believe that recovery currently underway has been far more broad-based than what a purely stimulus driven recovery would entail,” the bank said, adding that growth is likely to sustain for 2010-11.
It expects the economy to grow at 7.7% in 2010-11 fiscal year.
HDFC Bank said that it sees inflation touching 8.5% by March and speed to 10.9% by July.
Indian inflation jumped to a one-year high of 7.3% in December, reinforcing views the central bank will start increasing reserve requirements later this month to contain price pressures as the economic recovery strengthens.
HDFC Bank said that it sees credit growth to pick up to 14-16% levels by March 2010 and recover substantially to 22-23% by March 2011 as recovery becomes more entrenched.
It expects the central bank to hike the cash reserve ratio by 50 basis points at the 29 January policy meet. Rate hikes at this stage could derail growth momentum, it added.
It sees the earliest possible rate action in April when the central bank has a clearer sense of credit growth and the government’s borrowing needs for 2010-11.
A gradual hike in policy rate rates to the tune of 100-125 basis points in 2010-11 would normalise monetary condition and is unlikely to reverse the pick-up in growth momentum, it said.