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Indian economy may grow slower than expected

Indian economy may grow slower than expected

Some rating agencies and brokerages reduced the economic growth forecast for 2013-14 owing to the liquidity tightening steps taken by Reserve Bank of India (RBI).

For instance, rating agency ICRA lowered its growth forecast to the range of 5.4-5.6 percent from 5.8-6 percent earlier.

Bank of America Merrill Lynch cut growth forecast for Indian economy to 5.5 percent from 5.8 percent estimated earlier. Crisil lowered its growth outlook for the current year to 5.5 percent from 6 percent.

Australian bank Macquarie reduced its India growth forecast for 2013-14 to 5.3 percent from 6.2 percent earlier, citing significant capital outflows and rupee depreciation.

Deutsche Bank lowered its growth forecast for the financial year 2013-14 to 5 percent from 6 percent, citing weaker macro data and business sentiment.

The revised forecasts following RBI’s measures are almost half a percentage point below the average expected growth rate of 6 percent as on May.

In a research note, Deutsche Bank said …in India’s context, the RBI’s measures are risky as it pits the benefits from short-circuiting the currency weakness feedback loop, against the possible cost to growth from higher cost of liquidity getting transmitted through to the real economy.

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