S&P Global Ratings has retained its economic growth forecast for India at 7% for the current fiscal and 6% for 2023-24. It has also maintained its forecast of 6.9% growth for the country in 2024-25. The rating agency, expects retail inflation to fall to 5% in the new fiscal from 6.8% in the current fiscal, but expects the Reserve Bank of India to hike rate following the recent spurt in inflation.
“We expect the Reserve Bank of India to raise its already high policy rate further following a recent upside surprise to inflation,” said in its quarterly update on Asia Pacific released on Monday. It further said that consumer price index (CPI) inflation should moderate to 5% in fiscal year 2024 but said there could be upside risks, including from weather-related factors.
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The monetary policy committee of the RBI will meet on April 3, 5 and 6 to hold its first policy review of the new fiscal. It is widely expected to hike the repo rate by another 25 basis points after retail inflation remained elevated at over 6% for the second consecutive month in February at 6.44%. Most global central banks have also remained hawkish and the US Federal Reserve also announced a 25 basis point rate hike earlier this month.
However, despite pronounced core inflation, the agency expects Asian emerging market economies remain among the fastest growing ones in our global growth outlook through 2026. “India leads, with average growth of 7% in 2024-2026,” it said. It expects India to return to an over 7% growth rate by 2026-27 when it has projected GDP growth at 7.1%.
“In India, domestic demand has traditionally led the economy. It has become more sensitive to the global cycle lately, in part due to rising commodity exports; and its year-on-year GDP growth slowed to 4.4% in the fourth quarter,” it further said.
Maintaining a “cautiously optimistic” outlook for Asia-Pacific, it said that China’s economy is on track to recover this year and forecast that the country would grow by 5.5% in 2023.
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The agency also highlighted two trends that are important for its medium-term forecasts for the region. First, Covid-induced output losses in emerging market economies are likely to be permanent, it said, adding that the second key trend is a shift in export market shares among Asian economies.