Renaissance Capital cuts 2012 growth forecast

Renaissance Capital has slashed its growth forecast this year due to the choking effect of high interest rates.

The company cut its projection to 3.7 per cent from 4.6 per cent following the release of a weaker-than-expected growth data for the first quarter which was blamed on high interest rates and inflation.

“The impact of the sharp interest rate hikes in the last quarter of 2011 was more pronounced than we projected, particularly on financial services, construction, wholesale and retail trade, and real estate activity.

Agriculture also showed a weaker-than-expected recovery” read a statement from the firm.

Stem slowdown

The firm has also warned that sluggish growth in agriculture sector and the effect of high interest rates may imply a growth slowdown this year.

According to the statement, it is the sharper-than-expected growth slowdown in the first quarter of the year that informed the decision by Central Bank’s monetary policy committee to reduce the base lending rate by 150 basis points to 16.5 per cent.

“The good news is that the Central Bank began its rate-cutting cycle on July 5, although this came later than we had expected, we think that is positive for growth, because lower rates are likely to stem the slowdown in credit growth.

“However, we see downside to the growth outlook in agriculture due to bad weather,” the statement read in part.