Rating agency Moody’s (NYSE:MCO) cut India’s growth projections for the current and next calendar year due to higher inflation, high interest rates and slowing global growth that, it believes, will dampen economic momentum more than it had expected.
Moody’s said it now expects India’s GDP growth to slow to 7% in 2022 –– versus its previous estimate of 7.7% –– and then decelerate to 4.8% in 2023, before recovering to around 6.4% in 2024.
The Reserve Bank of India expects 2022/23 growth of 7%.
“We expect the RBI to raise the repo rate by another 50 bps (basis points) or so as part of its objective to anchor inflation expectations and support the exchange rate,” economists at Moody’s wrote in the note.
“Eventually, the RBI will likely shift from inflation management to growth considerations, provided that the rate increases have the desired effect of taming inflationary pressures.”
The RBI has already raised rates by 190 bps since May to curb inflation, which has remained above its 2-6% target band for much of this year.
Moody’s said the weakening Indian rupee and high oil prices will continue to exert upward pressure on inflation.
The rating agency, however, said India’s underlying growth dynamics are fundamentally strong on the back of a rebound in services activity.
“While these domestic strengths will continue to support the domestic growth narrative, global financial tightening and slowing external demand will pose downward pressure on growth in 2023.”