Moody’s Moody’s Investors Service on Friday cut India’s economic growth projections for the calendar year 2022 to 7% from 7.7% and said the growth  could decelerate further for the next calendar year to 4.8% due to higher inflation, high-interest rates and slowing global growth.

In September, the global rating agency had also lowered India’s growth estimates for 2022 to 7.7% from 8.8% projected in May.

We expect growth to decelerate to 4.8% in 2023 and then to rise to around 6.4% in 2024,” Moody’s said in its Global Macro Outlook 2023-24. The Indian economy grew by 8.5% per cent in 2021.

The Reserve Bank of India has projected the Indian economy to expand by 7% in the financial year 2022-23 (FY23). Earlier, S&P Global Ratings had revised its growth forecast to 7.3% for FY23 from 8.7% while Fitch had slashed its projection to 7% from the previous estimate of 7.8%. The World Bank had cut India’s growth projection by 100 bps to 6.5% while the IMF has trimmed it to 6.8% to 7.4% for FY23. The Asian Development Bank too has cut its projection to 7%, from 7.5?rlier.

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% -/ 2% target inflation range for much of this year. Annual headline CPI inflation increased to 7.5% in September after dipping below 7.0% in July. Wholesale price inflation, however, has declined for four straight months, from a peak of 16.6% in May to 10.7% in September.

From May to September, the RBI raised the repo rate a cumulative 190 bps to 5.9% to contain inflation risks.

“We expect the RBI to raise the repo rate by another 50 bps or so as part of its objective to anchor inflation expectations and support the exchange rate,” Moody’s said. “Eventually, the RBI will likely shift from inflation management to growth considerations, provided that the rate increases have the desired effect of taming inflationary pressures.”

Moody’s noted that underlying growth dynamics are fundamentally strong, boosted by a rebound in services activity. Government capital expenditure and manufacturing capacity utilization have also improved. September exports are down from the peak in March, but they are still around 30?ove the pre-pandemic level. Non-food credit growth shows solid momentum.

“The private sector, having deleveraged after the RBI’s Asset Quality Review in 2015, is now well-positioned to increase capex spending,” it said.

Also, the Production Linked Incentive Scheme to attract investment in 14 key manufacturing sectors is showing results. “While 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,” it added.