Goldman Cuts India Growth Outlook As Deutsche Flags Slower Hikes

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A disappointing growth outcome last quarter is prompting key Wall Street banks to slash their annual forecasts for India, with some flagging the possibility the central bank may temper its aggressive monetary policy tightening.

Citigroup Inc sharply cut its growth projection to 6.7% for the fiscal year to March 2023, from 8% earlier, while Goldman Sachs Group Inc. revised it to 7% from 7.2% earlier, after data on Wednesday showed India's gross domestic product grew less than expected in the last quarter. Deutsche Bank said slow growth may prompt the Reserve Bank of India to go ease quantum of rate hikes.

“We will not be surprised, if RBI decides to slow down its pace of rate hikes to 25 basis points clips from September onwards,” said Deutsche Bank economist Kaushik Das in a note on Thursday, adding that RBI will lower its 7.2% GDP estimate for the current fiscal in its next monetary review on Sept. 30.

India's central bank has increased the policy rate by a total of 140 basis points this year to curb inflation. Indian bonds were little changed on Thursday, while global bonds extended their selloff as hawkish central bank expectations intensified in the wake of Jackson Hole.

India's economy grew 13.5% in the April-June period from a year ago, the fastest pace in a year, but missed the central bank's forecast of a 16.2% increase as well as Bloomberg survey estimate of a 15.3% gain.

“Despite the main drivers of domestic demand coming in line with our expectations, a large drawdown in inventories and statistical discrepancies came as a surprise,” said Goldman Sachs economist Santanu Sengupta.

Slowing growth and inflation that's still holding above the RBI's comfort zone will make the monetary authority's job a difficult one.

A sudden stalling of growth momentum “could sow some seeds of doubt in their emphasis on the 4% CPI target” Citi economists Samiran Chakraborty and Baqar M Zaidi, wrote in a note. “Emergence of downside risk to growth and upside risk to inflation would further complicate RBI's aim of calibrated monetary policy actions.”

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