India: Risks to growth balanced or to the downside – Nomura

Economists at Nomura share their view on the Indian economic outlook, given soaring inflation while predicting a hawkish move from the Reserve Bank of India (RBI) going forward.

Key quotes

“We assume the RBI is committed to anchoring inflation closer to 4%, hence our view that upside inflation surprises, starting from April, will lead to a hawkish pivot. Our modified Taylor Rule estimates suggest policy rates will need to rise from 4.00% currently to 5.75-6.00% by March 2023.”

“India's inflation to average 5.8% in FY23, sharply higher than central bank’s 4.5% forecast. India policy repo rate has been maintained at record low 4% since May 2020 while rate setting panel has said it will remain accommodative as inflation is estimated to come off.”

“From a medium-term perspective, our judgement is that the risks to inflation are skewed to the upside, while the risks to growth are either balanced or skewed to the downside.”

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