Morgan Stanley trims India's GDP forecast to 7.2%

The Reserve Bank of India, too, last month raised the key interest rate by 50 basis points. India's annual consumer inflation, which touched multi-year highs in the past few months, eased marginally to 7.01% in June.

Morgan Stanley cut its forecast for India's annual growth to 7.2% for this year, as tighter financial conditions and a slowdown in global trade have pressured major economies around the world. The brokerage's forecast, down from its previous projection of 7.6%, comes after India's economic growth slowed to the lowest in a year in the first three months of 2022 at 4.1%. The revised target is in line with the Reserve Bank of India's view.

For the next year, Morgan Stanley expects the annual GDP to touch 6.4%. Global central banks have moved to sharply tighten monetary policies to curb surging inflation, increasing worries of a possible recession. The Reserve Bank of India, too, last month raised the key interest rate by 50 basis points.

India's annual consumer inflation, which touched multi-year highs in the past few months, eased marginally to 7.01% in June. The brokerage expects more respite ahead. "Building in the moderation in commodity prices and swifter correction in domestic food prices, we see the near-term inflation trajectory improving," Upasana Chachra, chief India economist at Morgan Stanley said in a note dated Sunday.

Chachra pegged the terminal repo rate at 6.5% and expects it to be reached by April 2023. The central bank raised the rate to 4.9% last month. "We expect that normalization in real rates will help preserve macro stability and provide a basis for a durable growth recovery."