RBI's monetary tightening may affect growth
India is unlikely to be affected by the crisis in the US. However, the monetary tightening measures that the central bank has resorted through hiking cash reserve requirements (CRR) for commercial banks is likely to affect the growth rate, accordi...
By TNN |
MUMBAI: India is unlikely to be affected by the crisis in the US. However, the monetary tightening measures that the central bank has resorted through hiking cash reserve requirements (CRR) for commercial banks is likely to affect the growth rate, according to ratings firm Standard and Poor’s (S&P).
Speaking to the media in Mumbai on Wednesday, S&P Asia-Pacific chief economist Subir Gokarn said the slowdown in the US economy is largely confined to the housing market. Since, it is not import, which in turn is not very import intensive. Therefore there is no direct impact on Asia including India. Besides Asian economies are integrating with the region because of which intra-regional trade is also growing rapidly requiring them to rely less on the US markets.
The Reserve Bank has hiked the CRR several times this year impounding substantial rupee liquidity from the system resulting from sharp capital flows. The central bank’s measures are expected to slow down economic growth marginally in 2008, with real GDP growth projected at about 8.1-8.6%, as against 8.5-9% in 2007,
according to S&P.
“With domestic forces driving demand, India is relatively immune to US credit woes. However, India continues to see a very rapid growth in energy consumption and hence domestic growth drivers may be hindered by oil prices remaining at these levels for any sustained period of time and this may impact the ability of the Indian economy to grow under its own steam” Mr Gokarn said.
“Overall, while global developments have made the environment more risky, the strength of domestic demand is expected to keep the Indian economy on a relatively high growth trajectory. The moderation to 8.1-8.6% this year reflects a soft landing, taking the Indian economy closer to its current trend growth rate, estimated at 8.5%” Mr Gokarn added.
While the outlook is stable, there is a negative bias with entities pursuing rapid inorganic growth with leveraged buy-outs and debt supported expansion.
As for the outlook on equities, S&P Equity Research head of Asia-Pacific equity Lorraine Tan said, “We are largely neutral on the Indian equity markets as additional foreign inflows may be muted owing to recent government moves to limit foreign fund inflows via offshore derivatives; but believe that the market is at a comfortable point with corporate earnings growth to support further upside in 2008”.
Speaking to the media in Mumbai on Wednesday, S&P Asia-Pacific chief economist Subir Gokarn said the slowdown in the US economy is largely confined to the housing market. Since, it is not import, which in turn is not very import intensive. Therefore there is no direct impact on Asia including India. Besides Asian economies are integrating with the region because of which intra-regional trade is also growing rapidly requiring them to rely less on the US markets.
The Reserve Bank has hiked the CRR several times this year impounding substantial rupee liquidity from the system resulting from sharp capital flows. The central bank’s measures are expected to slow down economic growth marginally in 2008, with real GDP growth projected at about 8.1-8.6%, as against 8.5-9% in 2007,
according to S&P.
“With domestic forces driving demand, India is relatively immune to US credit woes. However, India continues to see a very rapid growth in energy consumption and hence domestic growth drivers may be hindered by oil prices remaining at these levels for any sustained period of time and this may impact the ability of the Indian economy to grow under its own steam” Mr Gokarn said.
“Overall, while global developments have made the environment more risky, the strength of domestic demand is expected to keep the Indian economy on a relatively high growth trajectory. The moderation to 8.1-8.6% this year reflects a soft landing, taking the Indian economy closer to its current trend growth rate, estimated at 8.5%” Mr Gokarn added.
ADVERTISEMENT
The outlook for Indian corporates generally would not be adversely impacted by a potential contagion in global and regional credit markets, according to Corporate and Infrastructure Ratings senior director Anshukant Taneja. “Strong domestic and export demand continues in line with expectations, and Indian corporates are not likely to face significant challenges in accessing resources,” Mr Taneja added. While the outlook is stable, there is a negative bias with entities pursuing rapid inorganic growth with leveraged buy-outs and debt supported expansion.
As for the outlook on equities, S&P Equity Research head of Asia-Pacific equity Lorraine Tan said, “We are largely neutral on the Indian equity markets as additional foreign inflows may be muted owing to recent government moves to limit foreign fund inflows via offshore derivatives; but believe that the market is at a comfortable point with corporate earnings growth to support further upside in 2008”.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
