Moody’s slashes India’s growth forecast to 7%

Moody’s Investors Service on Tuesday lowered its forecast for India’s economic expansion to 7% this fiscal year due to drier-than-usual weather conditions, although policy changes are expected to strengthen growth next year.

The ratings firm had previously forecast the south Asian economy would grow 7.5% in the year started April 1.

India received 10% less than the average levels of rainfall from the start of the monsoon season in June until Aug. 17, according to official data. The below-average rainfall has clouded prospects for farm production, which could hurt rural incomes and weigh on consumer demand, Moody’s said.

For the next fiscal year, however, Moody’s predicted India’s economy would grow 7.5%, saying that the gradual implementation of policy changes will stimulate investment while low inflation will raise real income and boost consumption.

India’s consumer inflation has been weaker than expected in recent months, helping build optimism that it would undershoot the Reserve Bank of India’s 6% projection for January. If that happens, the chances of interest-rate cuts by the central bank to support growth would rise.

Moody’s said in a report that the RBI’s inflation targets look achievable unless commodity prices or food inflation deliver a large shock.

Source: MarketWatch