Economic outlook

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Apr 07, 2023

QuantEco Research || India Macrobook Apr-23

We maintain our call of moderation in GDP growth to 6.0% in FY24; We expect CPI inflation to decelerate from 6.7% in FY23 to 5.3% in FY24 with moderation in food, fuel, and core inflation. With the MPC now setting the bar high for incremental rate hikes, we believe monetary policy could see a prolonged pause with flexibility for action if upside risks to inflation play out. In the interim, the RBI is likely to continue focusing on gradual withdrawal of liquidity surplus to boost monetary policy transmission; We maintain our 10Y g-sec view at 7.00% for Mar-24; The balance of payment position is expected to move from concern to comfort. We see lower FY23 and FY24 current account deficit at 2.0% of GDP (USD 68 bn) and 1.4% of GDP (USD 53 bn), respectively. FY23 and FY24 BoP forecast now stands adjusted to -0.5% (USD -17 bn) and 0.3% of GDP (USD 12 bn) respectively. Basis our sizeable BoP revision and expectation of Fed rate cut in early part of CY 2024, we revise our USDINR forecast for end Mar-24 to 80.0 (assuming no escalation in geopolitical risks) from 85.5 earlier.