India's slowing economic growth is a "cause for worry", research group Moody's Analytics said Monday, highlighting the failure of aggressive interest rate hikes to curb near double-digit inflation. India's growth has weakened under the brunt of 12 interest rate increases since March 2010 that have pushed up borrowing costs for everything from consumer appliances to plant equipment.
India's growth would slow from an expected 7.8 percent year-on-year in the first half of 2011 to 6.5 percent by mid-2012, said Glenn Levine, senior economist at Moody's Analytics. That still implied a "soft landing" - a rate of growth high enough to avoid recession - Levine said in a research note, while warning that this outcome was "by no means assured". Although the economy of neighbouring emerging market China was also slowing, it was happening "at an entirely manageable rate", Levine said.
"India presents a more serious cause for worry" as its economy "is slowing sharply," he said. With inflation remaining stubbornly high at 9.72 percent in September, India's central bank may be forced into further monetary tightening in the months ahead which would exacerbate the slowdown, Levine said.
Many economists expect another 25-basis point rate hike later this month, pushing India's benchmark lending rate to around a three-year peak of 8.50 percent. "So far, the Reserve Bank of India's 325 basis points' worth of tightening must be judged a failure" while domestic demand has been hit hard, Levine added.
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