New Delhi: The country’s economic growth is expected to recover to 7.2% in new GDP series in financial year 2017-18 on lending rate cuts, says a survey.
The data released by the Central Statistics Office (CSO) noted that the gross value added (GVA) slipped sharply to 6.6% in the last financial year ended 31 March, from 7.9% growth in 2015-16.
“...This confirms our standing view of a shallow recovery. We expect FY18 growth to recover to 7.2% in new GDP series and 6% in old series on lending rate cuts," Bank of America Merrill Lynch (BofAML) said in a research note.
Regarding the Reserve Bank of India’s (RBI) policy stance, the report said on balance, we continue to expect the RBI to cut rates by 25 bps on 2 August, with May CPI inflation slowing below 2.5%.
“We grow more confident of our contrarian call of a 25 bps RBI rate cut on 2 August. We are tracking May CPI inflation at about 2.5%, at the lower end of RBI’s 2-6% mandate, with daily data showing food inflation continuing to fall in May on a good summer rabi harvest," it added.
The RBI in its monetary policy review meet on 6 April kept the re-purchase or repo rate—at which it lends to banks—unchanged at 6.25% but increased reverse repo rate to 6% from 5.75%. RBI’s next policy review meet is on 6-7 June.
The report noted that consumption demand will drive growth led by lower lending rates, 7th pay commission award, and better monsoon pushing up rural demand.
“We do not see material risk of second round inflation effects from the house rent allowance (HRA) hikes by the 7th pay commission as the first round effect itself is mostly statistical," it added.