India Dec Qtr Growth Slowest In Nearly Six Years

28 February, 2009

India’s economy grew at its slowest annual pace in almost six years in the December quarter, throwing into doubt growth estimates for the full fiscal year and raising expectations the central bank would soon cut rates.

The slower-than-expected growth in Asia’s third-largest economy saw a weak share market extend losses to more than 2 percent, and analysts said the central bank could cut rates as early as Saturday.

The economy grew 5.3 percent in the December quarter from a year earlier, below forecasts of 6.2 percent and the previous quarter’s 7.6 percent as the global economic crisis cut demand and exports.

It was the slowest growth since the March quarter of 2003.

“We have been calling for significant rate cuts for a long time. We are looking for a 100 basis points cut as soon as probably tomorrow in the repo rate and reverse repo rate,” said Sailesh Jha, senior regional economist at Barclays Capital.

“After seeing this number, I think the market is now pricing in a 100 basis points cut.”

The Reserve Bank cut its main lending rate, the repo rate, by 350 basis points to 5.50 percent in four moves between Oct. 20 and Jan. 2, but held rates steady at a review in late January, saying banks were yet to pass on its rate cuts.

The rupee, which hit a record low of 50.78 in morning trade, was supported by buying from state-run banks, which traders said was likely to have been on behalf of the Reserve Bank.

LOSING ALTITUDE

India’s economy has lost altitude from growth rates of 9.0 percent or higher in the past three fiscal years, and economists said the government’s forecast of 7.1 percent growth in the 2008/09 fiscal year ending March 31 was now too optimistic.

The manufacturing sector fell 0.2 percent in the October-December quarter from a year earlier, while the farm sector contracted an annual 2.2 percent.

Analysts were surprised by the contraction in farm sector growth, with some expecting the numbers would eventually be revised up, but said the overall picture remained grim.

“Whatever the government is doing is not going to be very effective as large-scale demand stimulus world over has not proved to be effective in restoring business confidence,” said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.

“Eventually interest rates are going to come down but the Q1 and Q2 of fiscal year 2009/10 are going to be very challenging for India.”

 


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India Dec Qtr Growth Slowest In Nearly Six Years

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