Economic growth to go up — IEG

Though manufacturing sector performed well in April and May, the capital goods and transport sectors disappointed, says the IEG monthly monitor. However, this may be a "temporary phenomenon."

The recent tight monetary policy of the RBI would reduce the liquidity and increase the interest rate, making the borrowings costlier for industry, says the IEG monitor. "This may discourage the investment and have a negative impact on the production in the future."

Based on the new WPI date up to June 2000, the IEG has forecast the inflation rate for the months of July, August and September to be 6.2, 6.01 and 6.32, respectively. "The volatile world petroleum prices and the rising trend in international commodity prices are expected to put further upward pressure on the price."

As per the IEG’s calculations, the consumer prices index is expected to grow by 6.08, 7.35 and 7.63 per cent, respectively, in June, July and August.

The IEG attributes the declining trend at the BSE to the reversal of the monetary policy of the RBI which hiked the bank rate by one percentage point. "This policy change by the monetary authorities has influenced the foreign institutional investors to switch their investments from stocks to other financial markets."

BSE index was also adversely affected by Bal Thackerey’s arrest and heavy rains in Mumbai. "It is expected that the declining phase in the sensex might continue for some more time. The re-entry of foreign institutional investors, who purchase the stocks at the lower prices, might increase the sensex in the future."