Morgan Stanley trims India’s GDP forecast for 2022 to 7.2 pct

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Morgan Stanley cut its forecast for India’s annual growth to 7.2 percent for this year, as tighter financial conditions and a slowdown in global trade have pressured major economies around the world.

The brokerage’s forecast, down from its previous projection of 7.6 percent, comes after India’s economic growth slowed to the lowest in a year in the first three months of 2022 at 4.1 percent. The revised target is in line the Reserve Bank of India’s view.

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For the next year, Morgan Stanley expects the annual GDP to touch 6.4 percent.

Global central banks have moved to sharply tighten monetary policies to curb surging inflation, increasing worries of a possible recession. The Reserve Bank of India, too, last month
raised the key interest rate by 50 basis points.

India’s annual consumer inflation, which touched multi-year highs in the past few months, eased marginally to 7.01 percent in June. The brokerage expects more respite ahead.

“Building in the moderation in commodity prices and swifter correction in domestic food prices, we see the near-term inflation trajectory improving,” Upasana Chachra, chief India
economist at Morgan Stanley said in a note dated Sunday.

Chachra pegged the terminal repo rate at 6.5 percent, and expects it to be reached by April 2023. The central bank had raised the rate to 4.9 percent last month.

“We expect that normalization in real rates will help preserve macro stability and provide a basis for a durable growth recovery.”

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