The central bank of India, which pledged last month to do “whatever it takes” to combat inflation, is anticipated to refocus its efforts on creating its version of a soft landing in which it combats price increases while attempting to maintain among the highest growth rates in the world.
After statistics revealed a weaker-than-anticipated recovery in the third quarter, economists anticipate Reserve Bank of India Governor Shaktikanta Das and his fellow members of the monetary policy panel to start slowing down the pace of interest-rate increases this month.
A warning sign for policymakers who have been vocal about maintaining growth is that the April–June period’s gross domestic product expansion of 13.5% fell short of the RBI’s 16.2% prediction.
In the words of Jayanth Rama Varma, an RBI’s rate-setting panel member, “I consider a soft landing as a trajectory of policy rates that minimizes the growth sacrifice.”
Mr. Varma, a hawk on monetary policy, had supported a half-point increase at the August meeting when Das promised to lower inflation from about 7% to its goal range of 2 to 6%.
The growth prediction for India has already been reduced by Goldman Sachs Group Inc. economists to 7% from 7.2% and by Citigroup Inc. more significantly to 6.7%.
According to the International Monetary Fund, Saudi Arabia is expected to surpass the nation this year as the major economy with the quickest growth rate.
According to Deutsche Bank AG, the RBI is currently limiting rate increases to quarter-point adjustments after delivering 140 basis points of increases since May, including two half-point additions.
According to Arup Raha, chief economist for Asia-Pacific at Oxford Economics, India may have reached the peak of a rate-hike cycle after a few more hikes.
There are many uncertainties that policymakers must take into account, he added. As long as inflationary expectations are anchored, it is preferable for them to strive to encourage growth rather than avoid making a mistake.
In addition to rates, the RBI has been intervening to defend the rupee after it repeatedly surpassed 80 to the dollar, which helps restrain imported inflation.
Due to these actions, the Indian rupee has been among Asia’s most robust so far this year.
The Malaysian ringgit and the Philippine peso have fallen to multi-year lows in other parts of the region as the dollar has strengthened in anticipation that the US Federal Reserve will continue with significant rate rises to manage inflation.
This would probably necessitate thorough monitoring of the Fed’s operations by monetary authorities, such as Bangko Sentral ng Pilipinas.
The dynamics are vastly different for India.
Sonal Varma, an economist with Nomura Holdings Inc., said, “India doesn’t need to stay up with the US Fed.”
“Unlike the US, India did not overheat, and there is no wage-price spiral. The expert added that nobody should anticipate a recession in India, nor should they expect the inflation-targeting central bank making excessive growth sacrifices.