The global economy continued to cool in December while inflation eased, although remaining higher than levels tolerable by central banks. As such, major central banks now seem to be moving on from “catch-up” tightening, where they sought to correct being massively late to increase interest rates, to “calibrated” tightening. The Indian economy remained a global standout as 2022 concluded and 2023 began, but the outlook is becoming more two-sided due to a mix of international and domestic factors. In the absence of a pick-up in private investments, government capex will be critical to support growth in FY24. With the domestic economy remaining resilient and easing in the headline rate of inflation below RBI’s expectations in the December quarter, we expect a further step down to a 25-bps hike in February.
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