scorecardresearchRBI rate hikes may hit economic recovery: Finance Secretary

RBI rate hikes may hit economic recovery: Finance Secretary

Updated: 13 May 2022, 10:41 AM IST
TL;DR.

  • India's central bank is likely to raise its inflation projection for the current fiscal year at its June monetary policy meeting and will consider more interest rate hikes, Reuters reported on May 11.

Retail inflation surged to 7.79 percent in April, the fastest pace in eight years, owing to a surge in food and fuel prices, raising expectations that the central bank may favour more aggressive rate hikes in June to cool prices. Photo Credit: Reuters

Retail inflation surged to 7.79 percent in April, the fastest pace in eight years, owing to a surge in food and fuel prices, raising expectations that the central bank may favour more aggressive rate hikes in June to cool prices. Photo Credit: Reuters

Even though inflation is soaring high and central banks are feeling forced to hike rates, India's Finance Secretary believes rate hikes by the Reserve Bank of India (RBI) can hit the country's nascent growth.

"India's economic growth rate is likely to slow if the central bank hikes interest rates," Mint quoted Finance Secretary TV Somanathan saying to CNBC TV18 on May 12.

India's central bank is likely to raise its inflation projection for the current fiscal year at its June monetary policy meeting and will consider more interest rate hikes, Reuters reported on May 11.

Retail inflation surged to 7.79 percent in April, the fastest pace in eight years, owing to a surge in food and fuel prices, raising expectations that the central bank may favour more aggressive rate hikes in June to cool prices.

RBI raised rates by 40 bps in an off-cycle announcement. However, the concerns over growth have been growing as the rate hikes can drain liquidity from the financial system.

As reported by Mint, Morgan Stanley has lowered its forecasts for India's economic growth in the next two fiscal years, saying a global slowdown, surging oil prices and weak domestic demand would take a toll on Asia's third-largest economy.

Gross domestic product growth will be 7.6 percent for fiscal 2023 and 6.7 percent for fiscal 2024, 30 basis points lower than the previous estimates, the brokerage said in a note dated May 10.

IIP growth in March 2022 stood at 1.9 percent YoY against 1.5 percent YoY in February 2022. Brokerage firm Motilal Oswal Financial Services said although growth is higher on a monthly basis, it stood at 1.6 percent YoY in Q4FY22 against 2.1 percent YoY in Q3FY22.

"What’s worrying is the 4.3 percent YoY contraction in consumer goods production (both durable and non-durable) in March 2022 – its sixth consecutive decline. Capital goods production grew only 0.7 percent YoY in March 2022 against a 2 percent YoY growth in February 2022. Growth in infrastructure and construction activities also moderated in March 2022," said Motilal Oswal.

Disclaimer: The views and recommendations made above are those of the broking company and not of MintGenie.

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First Published: 13 May 2022, 10:41 AM IST