PUNE: International rating firm Fitch has revised down its growth forecast for India's GDP to 7.7 per cent % in the financial year ending 31 March 2012 (FY12) from a previous projection of 8.3 per cent. Fitch said on Monday that while the Reserve Bank of India's tighter fiscal stance appears to be appropriate to contend with persistent inflationary pressures in the country, higher policy rates have begun to weigh on the economy particularly with respect to growth and liquidity. While restricting liquidity is an essential component of the monetary transmission of anti-inflationary policies, the agency is cautious on liquidity situation in the Indian monetary system. The stressful liquidity conditions peaked over September-October 2008 due to external credit crisis among other things. The RBI reacted by cutting interest rates aggressively and took other steps to ensure adequate liquidity in the financial sector. While these measures eased liquidity and revived growth, they induced inflationary pressures. Currently on the domestic front, Fitch believes that the expected continuation of anti-inflationary policies, government borrowing and advanced tax payment in September 2011 are likely keep liquidity demand high in the near future. Fitch has selected variables from money market, foreign exchange market and macroeconomic parameters to arrive at the decision to downgrade India's growth pace. The relative liquidity conditions were assessed by aggregating the deviation measures of the individual variables from their long-term values, Fitch said.
TOI
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