RBI lowered GDP prediction for FY22 to 9.5% , CPI inflation expected to be 5.1%

The Reserve Bank of India (RBI) has lowered its GDP growth prediction for fiscal year 2021-22 (FY22) to 9.5 percent from 10.5 percent before. Consumer price inflation (CPI) is expected to be 5.1 percent in FY22, down from 5.2 percent previously anticipated (5.2 percent in Q1, 5.4 percent in Q2, 4.7 percent in Q3, and 5.3 percent in Q4), according to the central bank, with risks fairly balanced.

According to the RBI, the inflation trajectory is expected to be impacted in the future by uncertainty on both the upside and downside. The upward trend in international commodity prices, particularly oil, as well as logistical costs, presents upside risks to inflation expectations. Rural demand is still robust, and the projected normal monsoon will help to keep it that way in the future. However, the increasing distribution of COVID-19 infections in rural regions poses a danger.

The downward revision of GDP predictions follows the second wave of Covid infections that ground the Indian economy to a halt in recent weeks. The GDP growth projection is in line with previous forecasts from most major analysts and brokerages. India’s GDP growth is expected to be 9.3% in FY22 and 7.9% in FY23, according to Moody’s.

In May, the services PMI dipped to 46.1 from 54 in April, while the manufacturing PMI dropped to 50.8 from 55.5 in April. According to Nomura analysts, the May economic data reveals a greater impact on consumption and services, with manufacturing and exports maintaining stable, and most crucially, the second wave’s damage is much smaller than the first wave across the board.

Meanwhile, Barclays recently pegged India’s FY22 GDP growth at 7.7% in the bear-case scenario, which assumes another wave of infections and a two-month period of restrictions disrupting economic activity in the second half of calendar year 2021 (H2-21), evenly split between the third and fourth quarters (Q3 and Q4).

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