High and protracted uncertainty surrounding the course of geopolitical conditions weighs heavily on the Indian economy, observed the Reserve Bank of India on Friday as it raised interest rates by 50 bps, the fourth consecutive hike since April.
The country’s central bank has cut its economic growth projection to 7 percent from 7.2 percent in the current financial year ending March 2023. In the next two quarters, the economy may register only 4.6 percent growth, nearly one-third of the 13.5 percent growth in the April-June quarter.
"Commodity prices, however, have softened and recession risks in advanced economies (AEs) are rising," the RBI said in its monetary policy report.
Further crude oil production curtailment by OPEC plus and the spike in the seasonal winter demand for energy amidst high natural gas prices could harden international crude oil prices, it observed.
India has witnessed about a 67 percent decline in its forex reserves since April. RBI Governor Shaktikanta Das said that the reduction in forex reserves is “due to valuation changes resulting from dollar appreciation.”
“The Indian Rupee is a freely floating currency, its exchange rate market determined,” Das said.
Of late, advanced and low-income countries around the world have resorted to raising interest rates to reduce domestic inflation, triggering fears of a recession.
The US economy shrank by 0.6 percent during the second quarter of the year, data released by the Bureau of Economic Analysis released on Thursday. This is the second contraction in a row for the US economy.
Christine Lagarde, President of the Central Bank of the European Union, warned of zero growth for the region with a strong possibility of a recession in Germany and Sweden by next year.