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India’s economy is in a ‘sweet spot,’ but private consumption growth may continue to slow: DBS Bank

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Food inflation accounts for almost half of India’s total consumer price basket.

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India’s economy is in a “sweet spot,” but growth in private consumption is expected to slow further, Radhika Rao, senior economist at DBS Bank said. 

India’s GDP expanded by 7.6% during the July to September quarter as a result of stronger manufacturing activity and government spending, beating Reuters poll estimates of 6.8%. 

Even though it was lower than the 7.8% expansion during the April to June quarter, the country’s growth is “one of the strongest in the region among major economies” and DBS expects the GDP to expand around 6.8% this year, Rao said on CNBC’s “Squawk Box Asia” on Friday.

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She highlighted that the slowdown in consumption activity during the July to September quarter, which will likely continue through the winter, was owed to weak farm production in the summer months due to erratic weather. 

Although household consumption is likely to have picked up during the October to December quarter due to festivals including Diwali, it could fall again in the January to March quarter ahead of the 2024 general elections, Rao warned. 

Higher inflation

Inflation in the South-Asian country is also expected to tick up in November because food prices could rise once again, Rao said. 

Food inflation, which accounts for almost half of India’s total consumer price basket, rose by 6.61% year-on-year in October, according to data from the country’s Ministry of Statistics and Programme Implementation, marginally higher than the 6.56% in September.

Despite the possible rise in inflation, Rao believes the Reserve Bank of India will not hike interest rates, but the central bank will stick with its hawkish stance. 

Inflation fell to a four-month low of 4.87% in October, but remains higher than the Reserve Bank of India’s 4% target.

“They maintain that inflation at 5% or 4.5% is not what they’re looking for … They might not move on rates, but I think they will look to tweak some macroprudential measures,” Rao said. 

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“We don’t see any rate hikes coming, but we don’t see any let up on the hawkish stance as well,” she added.  

Source: CNBC

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