RBI flags risks to growth, says inflation could take toll

MUMBAI: The ceasefire in West Asia has provided “a breather to the global economy”, but RBI cautioned that “downside risks to the global outlook” have increased even as “upside risks have increased” on the inflation front, signalling a more fragile balance for the Indian economy in its latest State of the Economy assessment.

The report adopts a calibrated tone on domestic conditions. It said that “domestic economic activity displayed resilience in many segments with a slowdown in a few others”, while “early signs of deceleration” are becoming visible. High-frequency indicators present a mixed picture. It noted that “demand conditions remained resilient, despite some pockets of slowdown”, and GST collections indicate sustained consumption.

However, business surveys show that “cost pressures and uncertainty took a toll on new orders and output”, with PMI-based output growth slowing to its weakest pace since mid-2022.

Forward-looking indicators suggest a more cautious outlook. RBI said its surveys point towards “softening consumer confidence… and moderation in business optimism along with buildup of cost pressures”, indicating that demand may lose momentum in the coming months.

HSBC downgrades India, 2nd in a month

Within a month of downgrading India to neutral from overweight, HSBC, on Thursday, downgraded India further to underweight as analysts feel the economy is expected to face inflationary pressure from rising petro product prices post the state elections. There’s also a chance of a slowdown in foreign flows due to the sharp depreciation of the rupee. To balance its downgrading of India, HSBC analysts upgraded Korea to neutral from underweight. “The relative case for Indian equities has weakened as headwinds erode India’s standing versus the rest of the region,” analysts said.
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