Morgan Stanley Raises India’s Growth Forecast

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Oct. 16 – Morgan Stanley predicts higher growth for India next year to 6.4 percent from 5.8 percent based on the strength of positive industrial output and policy rates.

“However, we believe a rate hike would be unlikely to derail the recovery, as we see a potential increase as a move towards normalization rather than tightening that would hurt growth,” said Morgan Stanley economists Chetan Ahya and Tanvee Gupta wrote in an Oct. 14 note reports Reuters

Morgan Stanley says it expects the Reserve Bank of India (RBI) to maintain rates although there is a possibility of raising the banks’ cash reserve ratio to manage rising capital inflows. It also changed its growth forecast for industrial production to 8 percent from 6.4 percent and its services sector growth forecast to 8.4 percent from 8.1 percent.

The bank predicts that strong growth will be possible given India’s aggressive fiscal policy and loose monetary policy that saw the RBI cut its key interest rate by 425 basis points from October 2008 and April. To weather the global economic crisis, India cut import and factory gate duties and increased spending.