Risks are shifting fast from Covid-19 to geopolitics, crude oil, and interest rate hikes in the US
“Any potential upside due to the early end of a mild third wave of Covid-19 infections will be offset by the ongoing geopolitical strife stemming from Russia’s invasion of Ukraine, which is creating a dampening effect on global growth and pushing up oil and commodity prices,” it said on Thursday, adding that the risks to growth are also tilted to the downside.
The average Consumer Price Index (CPI)-based inflation will stay firm at 5.4 per cent in 2022-23, if the price of crude oil averages $85-90/barrel, it said, adding that this takes into account the excise duty cuts announced last year.
“However, upside risks will build if the geopolitical strife prolongs, keeping oil and commodity prices higher for longer,” Crisil said in its India Outlook, Fiscal 2023.
Dharmakirti Joshi, Chief Economist, CRISIL said that the GDP growth forecast depends on the government-led infrastructure initiative and chances of the capex cycle reviving.
“Private consumption is the weak link and there is no direct support, it hinges largely on Covid remaining low. Many regard this period as the beginning of the endemic phase. That will support private consumption but some headwinds from high inflation going ahead,” he said.
The impact of global crude oil prices on domestic inflation will depend on how it moves through the year, he said, adding that the agency expects oil prices to remain high for one to two months, and then some downward trend.
Crisil expects the repo rate to rise by 50 to 75 basis points next fiscal.
Amish Mehta, Managing Director and CEO, CRISIL Ltd, said, “Spiking commodity prices, especially of crude oil, will have a bearing on India’s macros, including the current account deficit and inflation. These would create headwinds to growth. The good part is, the health of the financial sector is on the mend, with better capitalisation, profitability and asset quality
Published on March 10, 2022