While risks arising from high inflation and fiscal slippage have receded, concerns about growth and current account deficit have worsened, which may pull down GDP growth to about 6.2 percent next fiscal, says a Barclays report.
The report also said the effort to reduce fiscal deficit through austerity measures is weighing on growth.
Also read: GDP growth forecast for 2013 revises down to 5.9%: CLSA
Referring to inflation and further easing by the RBI, it said the central bank is likely to reduce policy rates by another 50 basis points (0.5 percent) by mid-2013.
"Softer headline and core inflation allow the central bank to reduce the repo rate 50 bps in Q1 of 2013. We maintain our forecast that the RBI will deliver another 50 bps rate cuts by mid-2013," it said. The report also said that the RBI's open market operations would remain a key tool to infuse liquidity during the first half of this financial year.
On the balance of payment (BOP) front, it said the outlook remains under cloud due to high CAD. According to the report, CAD, which has touched 5.4 per cent in the second quarter of current fiscal, is likely to be around 6 percent in the Q3 and 4.1 percent in Q4 of current financial year. "We forecast the deficit to hover around 4.1 percent of GDP in FY 14 - a bit narrower, but still well above country's longer-term average of less than 2 per cent of GDP," it said, adding capital inflows will still likely cover most of the financing needs.
The report said the rupee is likely to be around 54 to the dollar in the next three months and at 55 level in 12 months.
READ MORE ON Barclays, current account deficit , GDP growth , fiscal deficit , inflation, rupee , balance of payment
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