Despite some loss versus the US dollar, the rupee is among the best performing currencies in the region, according to Goldman Sachs, who also predict that headline inflation would fall to 6.1 percent next calendar year from an expected 6.8 percent this year.
Goldman Sachs Group Inc. reduced its prediction for India’s economic growth next year, citing a drop in consumer spending due to increasing borrowing prices and the fading advantages of pandemic reopening. Goldman analysts led by Andrew Tilton said in a paper Sunday that GDP might grow by 5.9 percent in calendar year 2023, up from an expected 6.9 percent this year.
“Growth will most certainly be divided into two halves,” they said, “with a slower first half as the opening boost disappears and tightening cycle drags on domestic demand.” “GDP is expected to re-accelerate in the second half as global economy recovers, net export drag diminishes, and the investment cycle accelerates.”
India, which emerged from the pandemic to reclaim the title of fastest-growing major economy in the fiscal year ended March, is struggling to replicate that performance in the face of a slew of challenges, ranging from a hawkish US Federal Reserve to higher consumer-price growth and widening fiscal and external deficits. According to Goldman, the investment cycle would speed up in the second half of 2023, assisting India’s development recovery.
Despite some loss versus the US dollar, the rupee is among the best performing currencies in the region, according to Goldman Sachs, who also predict that headline inflation would fall to 6.1 percent next calendar year from an expected 6.8 percent this year. According to Goldman analysts, the Reserve Bank of India will likely raise the benchmark interest rate by 50 basis points in December and another 35 basis points in February to reach a terminal rate of 6.75 percent. The benchmark rate is now 5.9 percent.
Moody’s Investors Service also reduced India’s economic growth outlook for 2022 to 7% from 7.7% before, citing monetary policy tightening, increased inflation, unequal monsoon distribution, and decreasing global growth.
It anticipates another 50 basis point hike in the repo rate by the Reserve Bank of India (RBI) to underpin inflation expectations and support the rupee exchange rate.
The year’s top story CPI inflation increased to 7.5% in September, up from less than 7.0% in July. Wholesale price inflation, on the other hand, has fallen for four months in a row, from a high of 16.6% in May to 10.7% in September.
Moody’s also reduced its 2023 growth prediction to 4.8% from 5.2% before. Following the slowdown, the agency predicts that India’s economic growth will resume at 6.4% in 2024. However, the ratings agency stated that India’s underlying growth fundamentals are fundamentally solid, bolstered by a comeback in services activity.
On the other side, the World Bank reduced its 2022-23 (FY23) real GDP growth prediction for India to 6.5% from 7.5% before, warning that spillovers from Russia’s invasion of Ukraine and global monetary tightening will impact on the economy.