InvestorQ : Has the RBI decided to cuts its growth and inflation forecast for Indian for FY22?
diksha shah made post

Has the RBI decided to cuts its growth and inflation forecast for Indian for FY22?

Tisha Malhotra answered.
12 months ago

While there is no official announcement from the RBI on this front, the indications have come from a speech made by Dr. Michael Patra at the Indian Merchants Chamber (IMC) in Mumbai. The deputy governor of RBI had hinted in his speech that due to the uncertainties caused by the Russia-Ukraine war RBI may have to do a serious review of its projections for GDP growth and also inflation. The war emerged as a key risk factor, as per Dr. Patra.

There are several reasons why RBI is apparently looking at a downgrade of growth and a possible upping of inflation estimates. To begin with, oil prices shot up to nearly $130/bbl, although it is now much lower, but the risk is far from over. Secondly, supply chain constraints resulted in a sharp rise in the metals, minerals and food products. Finally, the Black Sea Embargo could impact the $10 billion trade that India has with the region.

How deep would the RBI revision be? RBI has already cut down its projected FY22 GDP growth from 8.9% to 7.8%. However, RBI this could come down further to 7.5% or thereabouts on back-ended risks. The bigger concern for the RBI is on inflation estimates. RBI had projected CPI inflation to taper to 4.5% in FY23. That look too ambitious now and cold spill on the higher side, if the current input cost inflation continues.

Of course, Patra also had a more optimistic sounding note. India has things a lot more in control now. For example, oil inflation can be avoided by not raising prices of petrol and diesel; something it is doing right now. Alternatively, government can forego some of its excise revenues. The good news was that India’s trade relations with Russia were limited, unlike China or Europe. However, the spill-over effect could hit inflation more than growth.