The Reserve Bank of India (RBI) may cut growth projections ‘modestly’ for the current year when the monetary policy committee (MPC) meets next week, Barclays said in a note Tuesday. This comes as GDP growth in Q4 FY 2022 was at a one year low and economic growth in FY 2023 is expected to slow due to the Russia-Ukraine war. In the April MPC meeting, RBI said it expects GDP growth of 7.2% in FY 2023.
Barclays also said it has also cut India’s GDP projections by 80 basis points to 7 per cent for this year given the increased headwinds from rising prices, falling profitability and the weaker global backdrop.
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GDP projections for FY 2023:
Economists have cut their projections of GDP growth to between 6 and 7.5 per cent as they expect rising food and fuel inflation, spilling over from the war in Ukraine, to impact consumer spending and investments. Separately, the IMF is expected to cut its GDP forecast downwards from earlier projections of 8.2 per cent amid slowdown due to omicron and because of spillovers from the Ukraine war, an IMF official told PTI.
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Growth vs inflation: RBI may shift focus to the latter, undertake rate hikes
Barclays also said it thinks the elevated level of inflation “could force the central bank to shift its focus to fighting price pressures, away from supporting growth”. RBI Governor Shaktikanta Das said in an interview last week that the central bank will revise inflation projections for the current fiscal in the June MPC meeting, adding that it is committed to containing inflation while keeping growth in mind. “It can’t be a situation where the operation is successful and the patient is dead,” Das told the Economic Times. RBI’s MPC is scheduled to meet next between June 6 to 8, 2022.
“We expect the RBI to undertake a front-loaded rate hiking cycle, reversing the extraordinary policy accommodation provided since March 2020. We maintain our base case of a 50 bps rate hike in June, followed by a 25 bps increase in August, which would take the repo rate back to the pre-pandemic level of 5.15 per cent,” Barclays said in a note, authored by economists Rahul Bajoria and Sri Virinchi Kadiyala.
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“While the series of supply side measures announced by the government are all likely to help in tempering the inflation trajectory, they are not sufficient to offer any material reprieve from elevated price pressures and come at the cost of material widening in India’s fiscal deficit,” Barclays added.
