News ID: 1338
Published: 1044 GMT September 10, 2014

Goldman scraps RBI interest-rate increase on better monsoon

Goldman scraps RBI interest-rate increase on better monsoon

Goldman Sachs Group Inc. has scrapped its forecast for the Reserve Bank of India (RBI) to raise borrowing costs after a pickup in monsoon rains and a drop in oil prices tempered the inflation outlook.

 

 

The US lender, which had expected a 50-basis-point increase in the benchmark repurchase rate this year followed by a reduction of the same magnitude in the second half of 2015, now sees the RBI staying on hold through the end of next year, it said in a report. Consumer-price gains slowed to 7.8 percent in August, from as high as 11.16 percent in November, the median estimate in a Bloomberg survey shows before data due September 12.

“Near-term risks to inflation have receded due to weaker oil prices and a significantly improved monsoon,” Tushar Poddar, an economist at Goldman in Mumbai, wrote in the report. “While our base case is now for the RBI to remain on hold, the probability of a rate hike is higher than that of a rate cut. The biggest change under the new government has been a more investor-friendly mindset.”

Measures taken by Prime Minister Narendra Modi, who took office after a landslide election win in May, will spur economic growth, lure capital inflows and support the rupee, Goldman said in the report. A shortfall in India's annual rains, crucial for crops from sugar to rice and cotton, has narrowed to 11 percent from more than 40 percent in June, official data show, and Brent crude prices have retreated 14 percent from this year's high of $115.71 per barrel in June.

Goldman predicts Asia's third-largest economy will expand 5.6 percent in the fiscal year through March 2015. Gross domestic product increased 4.7 percent in the previous period, a pace that was near the decade-low 4.5 percent recorded the year before. The US lender still sees the rupee weakening to 61 per dollar, 62 and 63 in three, six and 12 months. The currency fell 0.4 percent to 60.8225 as of 9:21 a.m. in Mumbai, according to prices from local banks.

   
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