India’s growth to fall to 29-year low of 2.2% in FY 20/21 – Morgan Stanley
Fundamental Forex Analysis

India’s growth to fall to 29-year low of 2.2% in FY 20/21 – Morgan Stanley

Morgan Stanley’s India Economist, Upasana Chachra, said in her latest client note, India’s gross domestic product (GDP) growth is seen falling to a 29-year low of 2.2% this financial year before recovering to 5.5% next year.

Key quotes

“We expect a gradual recovery in growth, since disruptions related to Covid-19 have occurred at a weak starting point of the growth cycle. As such, we expect a natural rebound in economic activity as lockdown measures ease.

Expect New Delhi to provide an additional temporary fiscal package of approximately 1% of GDP through a combination of increasing fuel taxes and widening headline fiscal deficit to 5%.

Expect 40 basis points of rate cuts, expects the central bank to continue to provide adequate liquidity through long-term repo operations and targeted long-term repo operations.

If growth conditions take longer to recover, a temporary liquidity support window for NBFC’s and mutual funds can be considered.”

USD/INR implications

The Indian rupee has kicked-off this week on a firmer note, with USD/INR downed to 75.88 lows in the opening hours. However, the strength in the rupee will remain elusive amid a rising count of the new coronavirus cases in the country.

India confirms more cases of novel coronavirus, tally at 4,421 now with 114 deaths.

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