Asia’s third-largest economy is grappling with persistently high unemployment and inflation, which has been running above the top of the Reserve Bank of India’s tolerance band all year and is set to do so for the rest of 2022. The economy is also enduring inflation pressure from a weak rupee, which for months has been trading close to 80 to the US dollar. Growth this quarter is predicted to slow sharply to an annual 6.2% from a median forecast of 15.2% in Q2, supported by statistical comparisons with a year ago rather than new momentum, before decelerating further to 4.5% in October-December. The median expectation for 2022 growth was 7.2%, according to an Aug. 22-26 Reuters poll, but economists said that the solid growth rate masks how rapidly the economy was expected to slow in coming months.
While the central bank’s mandated target band is 2%-6%, inflation was expected to average 6.9% and 6.2% this quarter and next, respectively, before falling just below the top end of the range to 5.8% in Q1 2023. That is roughly in line with the central bank’s projection. The economy is also enduring inflation pressure from a weak rupee, which for months has been trading close to 80 to the U.S. dollar, a level the central bank has been defending in currency markets by selling dollar reserves. India’s current account deficit swelling to 3.1% of gross domestic product this year, the highest in at least a decade, which may put further pressure on the currency.