Soaring prices and the subsequent impact on consumer spending and investment are expected to further dampen India’s economy, as the central bank faces a well-rounded fight to rein in inflation via rate hikes without hurting the economy. economic growth, economists said.
Asia’s third-largest economy likely grew 4.0% in the January-March quarter from a year earlier, a Reuters poll showed last week. That would be the slowest pace in a year, after growth of 5.4% in the previous quarter.
The forecast for the data, due at 5:30 p.m. Tuesday, ranged from 2.8% to 5.5% in the May 23-26 survey of 46 economists.
The short-term outlook for the economy has been clouded by a spike in retail price inflation, which hit an eight-year high of 7.8% in April. The surge in energy and commodity prices following the Ukrainian crisis is also weighing on economic activity.
The Reserve Bank of India (RBI) raised the benchmark repo rate by 40 basis points at an unscheduled meeting earlier this month.
The latest Reuters poll shows more than a quarter of economists, 14 out of 53, expect the RBI to rise 35 basis points to 4.75% in June, while 20 expect further movement significant ranging from 40 to 75 basis points, including 10 that provide for a 50-basis point hike.
Earlier this month, Reuters reported that India’s central bank is expected to raise its inflation forecast in June and consider further interest rate hikes.
Economists have revised India’s growth forecast for 2022 down as rising energy and food prices hit consumer spending – which accounts for 55% of the economy – while the most companies are increasingly passing on rising input costs to consumers.
“Rising crude oil, food and fertilizer prices will weigh on household finances and spending in the months ahead,” ratings agency Moody’s said in a note. It cut India’s growth forecast to 8.8% from 9.1% for calendar year 2022.
The nearly 4% depreciation of the rupee against the dollar this year has also made imported items more expensive, prompting the federal government to restrict wheat and sugar exports and cut fuel taxes, joining the RBI in the fight against inflation.
High-frequency indicators showed supply shortages and rising input prices weighed on output in mining, construction and manufacturing, even as credit growth accelerated and that states spend more.
Indian consumer confidence slipped in early May, plunging for the second consecutive month, as rising fuel prices and broader inflation hit household finances, according to an Indian Refinitiv Ipsos survey.
Unemployment rose to 7.83% in April from 7.57% in March, according to the Center for Monitoring Indian Economy, a Mumbai-based private think tank.
RBI Governor Shaktikanta Das said last week that the central bank’s main objective was to bring inflation closer to its target, but it could not ignore growth concerns.
(Except for the title, follow The New Zealand Times on Social Platforms.)