Indian exports impacted

Economists are evaluating the impact of challenging global trade outlook and disputes on Indian economic growth in fiscal 2020, lowering growth prospects to 6.8% year-on-year from earlier projections of 7%.

The latest adjustment comes from Singapore’s DBS Bank where economist Radhika Rao says “Trade outlook will remain challenging considering global demand slowdown and trade disputes. Add to this, the US’ decision to withdraw preferential access to India’s exports is an additional headwind.

“Considering these factors, we revise down our real GDP forecast for FY20 to 6.8% YoY (vs 7% earlier) and GVA to 6.7% (vs 6.6% in FY19).”

Growth headwinds swiftly turn attention to the likely policy response. Rao expect monetary policy to do much of the heavy lifting, given limited fiscal leeway.

Oil prices have moderated from recent highs. Notably, the current bout of softening global yields is different from the last in 2012-2013, with regards to how India is placed, Rao noted in DBS research report on 20 June 2019.

Back then, the rupee was under pressure, and inflation was in double-digits, making it a challenge for the central bank to loosen policy levers, Rao pointed out.

“This time around, the rupee is only marginally weaker on the year, while inflation is well below target. Given this mix, we factor in another 50bp worth cuts in FY20, with the Repo rate to plateau at 5.25%,” said Rao.

Reserve Bank of India has Repo rates by a cumulative 75bps so far in 2019.

Policy stance was changed from ‘neutral’ to ‘accommodative’, opening the door to further easing.

Global cues have also played into the RBI’s hands; easing US yields, a dovish US Fed and cautious ECB, lower the hurdle for the Asian central banks, including India, to embark on further easing, believes Rao. fiinews.com