India’s economic growth to slow if RBI hikes interest rates: Finance Secretary

NEW DELHI: India’s economic growth rate is likely to slow if the central bank hikes interest rates, Finance Secretary TV Somanathan said on Thursday.

Reserve Bank of India is likely to raise its inflation projection for the current fiscal year at its June monetary policy meeting and will consider more interest rate hikes, a source said on Wednesday. The central bank hiked its repo rate by 40 basis points (bps) to 4.40% following a emergency meeting earlier this month.

In April, RBI raised its inflation forecast for the current fiscal year to 5.7%, 120 bps above its forecast in February, while cutting its economic growth forecast to 7.2% for 2022/23 from 7.8%. The next meeting of the MPC is scheduled for June 6-8. The RBI cut the repo rate by a total of 115 bps in 2020 to cushion the impact of the COVID-19 pandemic and anti-virus measures. It is now looking to reverse those cuts at a faster pace than it wanted to earlier, the source said.

Before the crisis in Ukraine erupted, the RBI expected retail headline inflation to peak by March and then ease back towards 4% in the second quarter of 2022/23 that started on April 1.