The International Monetary Fund on Tuesday lowered India’s economic growth projection for 2023-’24 to 5.9% from 6.1% predicted in January.

The World Economic Outlook report said that signs in early 2023 that global economy “could achieve a soft landing – with inflation coming down and growth steady – have receded amid stubbornly high inflation and recent financial sector turmoil”.

The international economic body’s forecast is significantly lower than the Reserve Bank of India’s projection of 6.5%. On April 6, the central bank had raised its growth forecast for the current year in its first monetary policy review of present fiscal year.

The Reserve Bank of India had also decided to keep the repo rate unchanged at 6.50%. The repo rate is the interest rate at which the central bank lends money to commercial banks.

Tuesday’s report also projected global real Gross Domestic Product growth at 2.8% for 2023-’24 and 3.0% for 2024-’25 – a sharp slowdown from 3.4% growth in 2022-’23.

The United States’ GDP growth is expected to fall at 1.6% in 2023-’24 from 2.1% in 2023-’24, Germany to -0.1% from 1.8% and the United Kingdom at -0.3% from 4.0%. The economic growth in China, however, is expected to rise to 5.2% in 2023-’24. from 3.0% a year ago.

“In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5% in 2023 with advanced economy growth falling below 1%,” the IMF said. “Global headline inflation in the baseline is set to fall from 8.7% in 2022 to 7.0% in 2023 on the back of lower commodity prices but underlying [core] inflation is likely to decline more slowly.”

The global financial body said that although economic risks from Covid-19 pandemic and Russia’s invasion of Ukraine have lowered, instability in banking systems have kept the situation fragile.

“While global inflation has declined, that reflects mostly the sharp reversal in energy and food prices,” Pierre-Olivier Gourinchas, the director of IMF’s research department, said. “But core inflation, which excludes energy and food, has not yet peaked in many countries.”

He told Reuters: “Central banks should not halt their fight against inflation because of financial stability risks, which look very much contained.”

The statement comes after the United States government had shut down two banks last month. The Silicon Valley Bank became the largest lender to fail since the global economic crisis of 2008, while the New York-based Signature Bank also failed.