India’s economy is expected to clock a growth rate of around 8 per cent this fiscal, lower than the government’s projection, due to decline in investments and industrial production, global financial services firm Citigroup said today. It also said that the Reserve Bank is likely to go for a 75-100 basis points cumulative hike in key-policy rates this year due to the sustaining high inflation.
“While the government is still maintaining its 9 per cent estimate for FY12, given the macro headwinds we expect the RBI to guide to a growth of 8 per cent plus or minus 0.5 per cent,” Citi said in its ‘India Macro View’.
According to the firm, negative elements on the macro front like rising rates, higher oil, policy at the governmental level and high inflation have out-shadowed the positives.
It said that the main concern was the sustained inflationary pressure. Inflation has remained above 8 per cent since February 2010.
Citi said it expects the RBI to go for a 75-100 basis points cumulative hike in key policy rates during the year and also said that another round of increase is to be expected during the apex bank’s next quarterly review on May 3.
“While the base case is that of the RBI hiking rates by 75-100bps through the year, due to inflationary pressures… we place the odds at 60:40 for a 25 basis points hike (on May 3),” it said.
RBI has already hiked the repo and reverse repo rates eight times since March 2010 to suck liquidity from the system and tame demand.
Another rate hike has become more certain after the headline inflation was at 8.98 per cent in March, much above the government and RBI’s projection of 8 per cent.