Axis Bank Ltd Chief Executive Officer Amitabh Chaudhry is watchful over consumer demand in the Indian economy and said expectations for growth might have to be tempered a bit, the Financial Times said in a report on Tuesday.
Chaudhry said lenders need to stay vigilant about the economic outlook despite the recent robust growth, as India’s post-pandemic rebound loses steam and global economic volatility makes forecasting more difficult, according to the report.
“Right now, the data seems to indicate that broadly things are ok, but not everything is ok. The private [capital expenditure] has picked up, but not enough. [The] government is obviously still spending a lot of money . . . but will it lead to a general pickup in demand? I think we have to be watchful,” the daily reported Chaudhry as saying.
India’s unemployment rate climbed to a three-month high of 7.8% in March amid concerns a global slowdown will hurt Asia’s third-largest economy.
Urban joblessness remained elevated at 8.4%, compared with about 7.5% in rural areas, according to data from the Mumbai-based Centre for Monitoring Indian Economy. In February, the overall rate was 7.5%.
The uptick follows early signs of cooling demand in the $3.2 trillion economy, where policy makers have been battling runaway inflation like their peers in the rest of the world. The Reserve Bank of India is likely to raise its benchmark interest rate for a seventh consecutive time on April 6, according to forecasts by economists.
Higher borrowing costs are already weighing on India’s economy, data show. Growth unexpectedly slowed to 4.4% in the quarter through December. Economic expansion may be under pressure as the “full-blown impact” of the RBI’s 250 basis-point increase in interest rates since May gets transmitted to end-consumers, Crisil Ltd., the local unit of S&P Global Ratings, has said in a report.
At the latest Monetary Policy Committee (MPC) of the RBI in early February, it decided to raise the repo rate by 25 basis points to 6.5 per cent to manage inflation. So far, RBI raised the repo rate, the rate at which it lends to banks, by 250 basis points cumulatively since May 2022.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in economy, thereby helping the inflation rate decline.
According to SBI Research’s latest Ecowrap report, the RBI is expected to pause its interest rate hike and the current 6.5 per cent repo rate could be the terminal rate for now.
