‘High inflation, CAD to come into play’
The current growth cycle being witnessed in the country is not durable and will peak by the first half of 2022, Japanese brokerage Nomura said on Friday.
Higher inflation and wider current account deficit — [the] side effects of loose policies adopted to push growth during the pandemic — will come into play, forcing RBI to act even as the ‘scarring effects cast doubt on growth’s durability’, it said in its yearly outlook.
It said recovery had been uneven, hurting consumption of lower-income households, and a sustained capital expenditure upcycle was also not in sight. “With mixed growth, high inflation and wider twin deficits, we expect India’s risk premium to rise and the RBI to catch up as it falls behind the curve,” its analysts said.
“In our base case, momentum starts to moderate in H2 [of 2022], reflecting cyclical factors and the impact of scarring effects, which have lowered the potential growth rate,” it said.
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