After sharp drop in April-June, the Reserve Bank of India (RBI) may slow the rate hike pace starting this month and switch to comparable actions, according to Deutsche Bank.
The third-largest economy in Asia experienced quarterly growth of 13.5%, which was less than the RBI’s target of 16.2% and the 15.2% predicted by experts in a Reuters poll.
“Given that April-June’s GDP growth has disappointed significantly compared to RBI’s forecast, we will not be surprised, if RBI decides to slow down its pace of rate hikes to 25 bps clips from September onwards,” Kaushik Das, chief economist at Deutsche Bank said.
If the U.S. Federal Reserve raises interest rates by 75 basis points on September 21, Das continued, the central bank may consider raising rates by 35 basis points.
Following rate increases of 50 bps in June and 40 bps in May, the RBI increased the repo rate by 50 bps to 5.40% in August. The following policy choice is required on September 30.
As pent-up demand dwindles and the cumulative effect of the RBI’s rate hikes begins to permeate into the actual economy, the bank anticipates that the sequential momentum of growth will slow down in the upcoming months.
The foreign bank anticipates that the RBI will lower its current projection of 7.2% growth in 2022–2023 to 7.0% or less.
“We believe that India’s GDP slowdown will be more noticeable in FY24, leading us to project a growth estimate of 6% below consensus,” the statement continued, maintaining its FY23 growth forecast of 7.1%.
According to Deutsche Bank, India’s potential growth might be between 6.0% and 5.5%.