Stimulus not enough to change growth outlook: Goldman Sachs

Global financial firm Goldman Sachs said in a report that the steps announced by the government and Reserve Bank of India (RBI) to arrest economic slowdown will not change the growth outlook for the current fiscal, even as it felt the apex bank may go for another cut in policy rates by 50 basis points. “While we welcome these counter-cyclical measures as a timely boost to confidence, we do not think that they will materially change the growth outlook,” Goldman Sachs said in a Asia Policy Watch report. Goldman said that India’s economy is likely to expand by 6.7% in the current fiscal and 5.8% in 2009-10. The Gross Domestic Product (GDP) growth rate was 9% in the previous fiscal. Noting that RBI has since October reduced key policy rates several times, the firm said that it believes that RBI will cut the repo and reverse repo rates by another 50 basis points in January to bring the corridor to 3.5-5%. As regards the cash reverse ratio, the amount that banks keep with the RBI, the central bank could reduce the ratio by another 150 basis points to inject more liquidity into the system, it added. Since October, RBI has reduced the repo rate by 3.5%, reverse repo by 2% and CRR by 4%. The report said that in the coming weeks, the banks could lower lending and deposit rates as a result of the easing money policy being followed by RBI. According to the report, the fiscal and monetary measures announced will be positive for banks, NBFCs, and infrastructure companies, and limit further downside to growth. In order to reverse the economic slowdown, the government on last Friday came up with a second stimulus package, while RBI announced cuts in key policy rates and ratios to ease liquidity situation.