The Reserve Bank of India will not need to raise rates on Friday, nor is there any reason to tighten policy, according to forecasts of the Asian Development Bank about India’s growth and inflation. 

Asian Development Outlook for 2022, the ADB’s flagship publication, anticipates India’s real GDP growth at 7.5% in the current fiscal year, increasing to 8% in 2023-24.

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The Reserve Bank of India’s target range for inflation would be attained and inflation is expected to be 5.8% this fiscal year and 5% in 2023-24, according to the ADB.

According to the ADB report, investment, particularly government investment, will be the driving force. The government capex will attract private investment, which will be bolstered by improved corporate and bank balance sheets and logistics. Growth will be aided by the government’s flexible budgetary policies.

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The impact of the Ukraine war, which would be seen in India mostly through rising oil prices, is factored into the ADB’s forecasts. According to the ADB, “oil price rises will exert upward pressure on prices,” but “fuel subsidies and oil refineries stocking up on cheap crude from the Russian Federation would reduce the impact on inflation.”

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As the pandemic’s restrictions are lifted, the report predicts that private consumption would rebound because of pent-up demand. Farmers’ incomes are likely to rise as agricultural output and wheat exports increase.

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‘Rising oil and commodity prices, as well as a falling Indian rupee, may provide a boost to exports, particularly petroleum and food products,’ according to the report. Remittances are likely to rise as India gets inflows primarily from the Gulf, where economic activity is expected to speed up as oil prices rise.’

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‘Given global uncertainty, monetary policy is expected to remain accommodative,’ according to the report. To maintain economic growth, the central bank will try to keep the policy rate steady, but a tightening of the US Federal Funds rate and rising oil prices may put pressure on it to raise policy rates in the second half of this fiscal year.’ 

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According to the report, poor global conditions and predicted hikes in the US Fed Funds rate will reduce foreign portfolio inflows, making it less appealing for foreign investors to invest overseas.

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The ADB’s estimates are in line with India’s March PMI survey, which reveals that despite the disruptions caused by the Ukraine war, output growth has remained strong and inflation has stayed within historical levels.