Moody’s raises India’s economic growth projections

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Chennai: Global credit rating agency Moody’s Investors Service on Wednesday raised India’s economic growth projections as well as several economies like the US, Russia, Euro area, China and others.

In all cases, strong data in the second half of 2022 created large carry-over effects for 2023, Moody’s said.

It has projected India’s growth at 5.5 percent in 2023 and 6.5 percent for 2024.

In the case of inflation rate, Moody’s has predicted 6.1 percent for 2023 and 5.5 percent for 2024 for India.

According to the credit rating agency, the primary drivers of economic growth in 2023 and 2024 will be the Central banks’ decisions regarding how much to raise interest rates, for how long, and when to begin to lower them.

Moody’s said the Central banks, having embarked on the most aggressive monetary policy tightening in decades, are now at a precarious juncture, faced with the question: Is the magnitude of rate hikes undertaken thus far adequate to quell inflation?

While there is a sense that the end to tightening is near, it is unclear how many more rate increases would be appropriate and for how long interest rates will remain restrictive. Central banks’ decisions will evolve according to wage and inflation dynamics.

The focus on inflation by the emerging markets, even as countries were still recovering from COVID-19, prevented second-round inflationary dynamics from taking hold, Moody’s said.

Most of the central banks in the emerging markets are close to moving to an extended pause in rate hikes, with the focus gradually shifting to supporting growth with inflationary pressures appearing to dissipate.

“Rate cuts could follow soon after the end of the Fed’s (US Federal Reserve) tightening cycle, although we expect emerging market central banks to stay vigilant about inflation resurgence risks, which could shift policy direction in the US,” Moody’s said.

The Reserve Bank of India’s (RBI) monetary policy committee voted in February to lift the repo rate at a slower pace, by 25 bps to 6.5 percent, maintaining its policy stance as “focused on withdrawal of liquidity.”

Moody’s expects the global growth to continue to slow in 2023, with increasing drag from cumulative monetary policy tightening on economic activity and employment in most major economies.

“We forecast G-20 global economic growth will downshift to 2.0 percent in 2023 from 2.7 percent in 2022, and then to improve to 2.4 percent in 2024,” Moody’s said.

According to the credit rating agency, possible surge in oil prices with increased demand from China and if Russia were to follow through with a five percent cut to its supply in March, as it has indicated, oil markets could stay tight and hinder disinflation.

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( With inputs from www.siasat.com )

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