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BofA cuts India's growth forecast; sees RBI slashing rates by 75bps

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Global brokerage Bank of America Securities cut growth forecasts for India and suggested a sharp benchmark rate cut to cushion the damage to businesses from the coronavirus outbreak. The broker trimmed India’s growth forecasts by 30 basis points(bps) to 4 per cent for the March quarter and 80bps to 4 per cent for the June quarter on Covid-19 related shutdowns. A large number of leisure, travel and hospitality businesses have been hit hard due to preventive measures to close shops and malls. BoFA Securities highlighted that high real lending rates continue to exert a drag on growth.

Although nominal bank MCLR has fallen 54 bps in the current fiscal till date on RBI easing, real MCLR has jumped 67bps with core WPI inflation falling, it added. “We expect the RBI MPC to cut rates by 25bps before or on April 3 with the FOMC cutting 150bps.

Second, it will likely cut again in June with inflation set to fall to its 2-6 per cent mandate.

Finally, we expect the RBI MPC to cut in October as base effects and weak demand will likely drag inflation down to 2.5 per cent in 2HFY21,” it said in a note. The report prepared by Indranil Sen Gupta and Aastha Gudwani said BofA India Activity Indicator continues to point to a long bottom.

But it added that shutdowns needed to contain the Covid-19 outbreak will likely pull down activity. India's GDP growth slipped to a nearly 7-year low of 4.7 per cent in October-December 2019, weighed by a contraction in manufacturing sector output.




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