Mumbai: The Indian economy may grow 6.7% in the current fiscal year, Morgan Stanley said in a recent note, cutting its estimate from 7%, citing weak domestic and external demand.
Growth in FY10 may slow further to 4.4%, versus Morgan’s previous estimate of 5.3% due to further downside pressures from weak capital inflows and export demand.
“Higher capital flows have been the anchor of a self-fulfilling virtuous cycle of an appreciating exchange rate, lower interest rates, and strong domestic demand growth,” Chetan Ahya and Tanvee Gupta, economists at Morgan Stanley wrote.
However, capital inflows will remain weak for some more time due to continued risk aversion, resulting from weak global environment and rising credit defaults, they added.
Morgan Stanley expects credit growth to slow to 10% over the next 6 to 8 months compared with a four-year average of 28.3% as rising bad loans may make banks risk-averse.
The analysts expect monetary easing to continue through the first half of calendar 2009 with supplementary measures to provide liquidity. They see the repo rate at 4.5% by June.
The Reserve Bank of India will announce its quarterly monetary policy review on 27 January.