India’s government and central bank took coordinated steps on Friday to spur foreign inflows, providing an immediate boost to the beleaguered currency. The challenge for policymakers will now be to sustain those flows in the face of economic threats beyond their control.
The double-barreled intervention by authorities was hailed by investors as significant enough to spur as much as $50 billion into Indian bonds and stocks this year and reverse an outflow that’s dragged the rupee to a record low. The currency and bonds rose on the news.
But the reality is that India’s economy is facing a gloomy outlook: The Iran war is dragging on and straining energy supplies, fuel and fertilizer costs have soared, food prices are at risk of spiking, and there’s still no trade deal with India’s biggest trading partner, the US.
Also Read | India can return to 7% GDP growth path in FY28 with macro stability, supply measures: CEA Nageswaran
That’s weighing on India’s growth outlook and — despite a surprise jump last quarter — economists are downgrading their forecasts to well below the 7% pace that’s made India in recent years the world’s fastest-growing major economy. The Reserve Bank of India on Friday projected growth of 6.6% in the fiscal year through March 2027, down from 7.6% last year.
