Mumbai, India—India’s central bank cut growth forecasts and sharply hiked its inflation projections Friday, citing fears that the war in Ukraine could derail the country’s nascent recovery.
Asia’s third-largest economy bounced back from the pandemic with world-beating growth but is now grappling with rising costs as global oil prices skyrocket.
“We are confronted with new but humungous challenges,” Reserve Bank of India boss Shaktikanta Das said in a televised address, calling the war in Ukraine a “tectonic shift.”
“Inflation is now projected to be higher and growth lower than the assessment in February,” he added.
The central bank projected the economy to expand 7.2 percent for the 2022-23 financial year, compared with a previous estimate of 7.8 percent.
It also saw inflation at 5.7 percent, well up from the 4.5 percent predicted two months ago.
India imports more than 80 percent of its oil needs, with the country’s dependence on foreign crude growing as domestic production falls.
Consumer price inflation in the first two months of the year has remained persistently above the central bank’s upper tolerance limit of 6 percent.
Despite this, the monetary policy committee (MPC) held the key interest rate unchanged at a historic low of 4 percent for the eleventh straight meeting.
But in its first clear signal of a future rate hike, Das said the MPC is “focusing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth.”
The benchmark Sensex was up 0.43 percent in intraday trade following the announcement.