Mumbai: The economy will accelerate to 7.5% in FY19 and there is a slim chance of the much- feared rate hike by the central bank in the near-term as inflation risks abate, says a report. There is optimism on the growth front and the expansion rate should go up to 7.5% for FY19 from the 6.6% print in FY18, German brokerage Deutsche Bank said in a report on Monday.
Admitting its growth estimate is marginally higher than the 7.5% median forecast by the Reserve Bank of India’s (RBI) professional forecasters poll last week, the report said even with the higher number, growth will be lower than the potential rate.
Growth slid to a three-year low of 5.7% for the June 2017 quarter due to the impact of demonetisation and implementation of GST. The report said the economy has recovered from these shocks as seen in 6.7% growth in the September 2017 quarter, which is expected to go up further to 7 % for the December quarter and to 7.5% for the three months to March 2018, the report said.
On the expected actions from RBI, it said the last policy review was less hawkish than what was feared initially which hints that the central bank is considerate to growth concerns. The report, however, did not offer a timeline for the rate hike.
“The central bank is not willing to jump into a rate hike cycle in a hurry, unless inflation risks rise materially from current levels," it said, adding the RBI will stay on hold for a longer period. It can be noted that the potential stance of RBI, which is contract bound to get inflation down to 4% over the medium-term, is leading to a lot of anxieties among people who feel that a rate hike will be detrimental to growth.
The brokerage said the headline inflation will cool down to 5% for January from 5.2% in December and will cool down further from July onwards on a lower base. On the impact of a wider fiscal deficit number, it said the RBI “seems to be giving a lower weight at this stage to the potential inflationary risks that could arise due to fiscal slippages".