Ratings agency Moody’s on Friday cut India’s gross domestic product growth projections for 2022 to 7% from its September estimate of 7.7%, stating that global slowdown and rise in domestic interest rates will hamper the pace of the country’s economy, PTI reported.

This is the second time that Moody’s has cut India’s growth estimates this year. The September projection of 7.7% was a downgrade from 8.8% in May.

“The weakening of the rupee and high oil prices continue to exert upward pressures on inflation, which has remained above the Reserve Bank of India’s [RBI] 4 percent -/+ 2 target inflation range for much of this year,” Moody’s said in its Global Macro Outlook 2023-’24 report, according to CNBC-TV18.

The ratings agency also noted that retail inflation in India increased to 7.5% in September after dipping below 7% in July.

To tackle inflation, the Reserve Bank of India has raised the repo rate on three occasions between May and September. During the period, the central bank has also cut its growth forecast to 7% from an earlier estimate of 7.2%.

Moody’s said it was expecting the RBI to raise the repo rate by another 50 basis points, or 0.5%, to control price rise and support exchange rate. The RBI will shift focus from inflation management to growth after the rate increases positively impact inflationary pressures, Moody’s said in its report.

The boost in service sector activity promises good growth for India, the report said, according to CNBC-TV18. It was also noted that government capital expenditure and manufacturing capacity utilization have also improved.

“…These domestic strengths will continue to support the domestic growth narrative, global financial tightening and slowing external demand will pose downward pressure on growth in 2023,” the rating agency noted, according to The Hindu.

Moody’s also stated that it expects growth to decelerate to 4.8% in 2023 and then to rise to around 6.4% in 2024.

The rating agency’s growth forecast for India is better than that of other agencies, which made their predictions in October.

The International Monetary Fund slashed the country’s 2022 growth forecast to 6.8% from July’s forecast of 7.4%. In its World Economic Outlook report, the financial institution had cited the Russia-Ukraine conflict and rising inflation as the reasons behind its revision.

The World Bank downgraded India’s economic growth forecast to 6.5% for the current fiscal year (2022-’23) from its earlier estimate of 7.5% announced in June. The growth estimate was revised downwards by one percentage point due to the deteriorating international environment.

The United Nations Conference on Trade and Development had projected that India’s economic growth will decline to 5.7% this year from 8.2% in 2021.

Global outlook

The rating agency said that the global economy is on the verge of a downturn amid extraordinarily high levels of uncertainty amid persistent inflation, monetary policy tightening, fiscal challenges, geopolitical shifts and financial market volatility, PTI reported.

“Global growth will slow in 2023 and remain sluggish in 2024. Still, a period of relative stability could emerge by 2024 if governments and central banks manage to navigate their economies through the current challenges,” it added