Central banks around the world continue to tighten policy rates to tame inflationary pressures while global economic recovery is starting to lose steam. The World Bank downgraded its outlook for global growth in 2022 sharply by 120 bps to 2.9%. Domestically, economic activity gained traction on the back of the continued release of pent-up demand for contact-intensive services. However, the rise in COVID cases, inflationary pressures, and a precarious external environment pose downside risks to the outlook. Further, the RBI raised its policy rate by 50 bps to 4.9% and changed its stance to focus on “the withdrawal of accommodation” in June to tackle inflation. Even though the inflation print eased in May, it remained elevated above the RBI’s upper threshold. As such, we expect the RBI to continue with the rate hikes in the upcoming meetings.
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