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India may post the fastest gross domestic product (GDP) growth in the Asia-Pacific region for the year ending March 2023, S&P Global has said in a recent report.
The rating company retained its GDP growth forecast for India at 7.8 percent for FY23. The forecast for the GDP growth of Asia-Pacific nations is 5.1 percent for 2022 and about 4.5 percent in 2023-2025, according to the report.
The study analyses the economic risks faced by Asian nations due to the Covid-19 pandemic and the ongoing Russia-Ukraine war and their coping mechanisms. One of the worst impacts of the pandemic and the war is inflation.
“Producer prices were rising at the start of the year, and the outbreak of the Russia-Ukraine war has drastically amplified the trend,” S&P said in the report dated March 27. “Consumer inflation is exceeding targets in Australia, India, New Zealand, the Philippines, Singapore, South Korea, and Thailand, and this is putting some central banks on a tightening path.”
Due to higher costs of energy and other commodities, prices will go up, challenging countries like India where consumer inflation has already exceeded the central bank’s targets.
“Given our current oil price forecast, average consumer inflation is likely to stay firm at 5.4 percent in fiscal 2023,” it said, referring to India.
The study suggests that the rise in inflation in India should compel the central bank to signal a neutral stance in its April review meeting, followed by a normalisation of the policy-rate corridor (the gap between the repo and reverse repo rate) and eventually increase the reverse repo rate in the upcoming monetary policy.
“The central bank will likely raise the repo rate by at least 50-75 basis points through the fiscal year 2023, and by another 50 basis points in fiscal 2024,” the S&P analysts wrote in the report. The policy rate in India may be revised to 5.25 percent soon.
Despite the economic challenges, there have been signs of recovery in Asian nations. The report said most Asia-Pacific nations are moving to a stance of living with Covid, with robustly positive economic effects. Asia-Pacific will likely resume its status as the world's fastest-growing large region.