Japanese financial holding company Nomura has lowered India’s growth forecast for the current fiscal year to 4.7% from its previous estimate of 5.4%, Business Standard reported on Thursday.

The agency has cited a fear of recession and rising interest rates for its reduced projection.

“Exports have started to struggle, while elevated imports are pushing up monthly trade deficits to record highs,” Sonal Varma, chief economist for India and Asia ex-Japan at Nomura said in a co-authored note with Aurodeep Nandi. “Higher inflation, monetary policy tightening, dormant private capex growth, the power crunch and the global growth slowdown pose medium-term headwinds.”

In India, inflation has stayed above the Reserve Bank of India’s 6% upper tolerance level in 2022 with the price-rise indicator touching an eight-year-high of 7.79% in April.

In June, the Reserve Bank of India’s monetary policy committee raised the repo rate by 50 basis points to 4.90% in an attempt to control inflation. This was the second hike in the repo rate within five weeks. The repo rate is the interest rate at which the central bank lends to commercial banks.

In its latest estimate, Nomura, however, said that the Indian economy is racing above its pre-pandemic level, led by a sharp recovery in the services sector, according to Business Standard.

The improvement has been broad-based across consumption, investment, industry and the external sector, it said. The Japanese financial holding company expects inflation in India to average 6.9% in 2022, and 5.9% in 2023.

In June, the United States-based credit rating agency Fitch had also lowered India’s growth forecast for the current fiscal year to 7.8% from its previous estimate of 8.5% made in March. In the same month, the World Bank had also lowered India’s growth forecast for the current fiscal year to 7.5% from its earlier estimate of 8% announced in April.