India Economics-: How big an interest rate risk to growth? ::Credit Suisse,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


● With the RBI ratcheting up the pace of rate hikes recently, we
address two key questions in our new report: ‘How big an interest
rate risk to growth?’
● (1) Are interest rates tight or loose? While many are beginning to
worry about the growth impact from rate hikes, others are looking
at still low ‘real’ rates. How does one reconcile the two? (2)
Assuming rate hikes so far are indeed contractionary, what are
the chances of GDP growth slowing to below 7%?
● Even though interest rates in ‘real’ terms don’t look high we
continue to expect GDP growth to slow to 7.5% in both 2011 and
2012, with risks to the downside. That is because 1) nominal
rates also matter (Figure 2) and 2) interest rates have increased
at a much faster pace this time (Figure 3)
● On the ‘brighter’ side: Even though we expect RBI to hike another
50 bp, we believe full-year GDP growth should not be much
below 7%. Key reason: Household consumption – 57% of GDP –
is not that leveraged (Figure 4). Investments are likely to bear
much of the brunt from higher rates