The Indian economy may grow 6.7 per cent in the current fiscal year,Morgan Stanley said in a recent note,cutting its estimate from 7 per cent,citing weak domestic and external demand.
Growth in FY10 may slow further to 4.4 per cent,versus Morgan’s previous estimate of 5.3 per cent due to further downside pressures from weak capital inflows and export demand.
“Higher capital flows have been the anchor of a self-fulfilling virtuous cycle of an appreciating exchange rate,lower interest rates,and strong domestic demand growth,” Chetan Ahya and Tanvee Gupta,economists at Morgan Stanley wrote.
However,capital inflows will remain weak for some more time due to continued risk aversion,resulting from weak global environment and rising credit defaults,they added.
Morgan Stanley expects credit growth to slow to 10 per cent over the next 6 to 8 months compared with a four-year average of 28.3 per cent as rising bad loans may make banks risk-averse.
The analysts expect monetary easing to continue through the first half of calendar 2009 with supplementary measures to provide liquidity. They see the repo rate at 4.5 per cent by June.
The Reserve Bank of India will announce its quarterly monetary policy review on Jan. 27.