Domestic demand is recovering well as mirrored by the performance of a host of high-frequency indicators. However, the prevailing global polycrisis is likely to impinge on our growth prospects too.

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Given the headwinds to domestic growth mainly emanating from the global uncertainties, the Reserve Bank of India (RBI) should consider moderating the pace of its monetary tightening from the earlier 50 basis points. This was stated by CII to the RBI regarding expectations on the forthcoming monetary policy.

While CII is cognisant of the fact that RBI's interest rate hikes of 190 basis points so far in this fiscal have been warranted to tame inflationary pressures, the corporate sector has now started to feel its adverse impact.

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CII's analysis of results for 2000-odd companies in the second quarter (July-Sept 2022) shows that both the top-line and bottom-line has moderated on sequential and annual basis. Thus, moderation in pace of monetary tightening is the need of the hour.

However, given the sticky core inflation at around the 6 per cent-mark, the RBI could consider hiking the key interest rates by an additional 25 to 35 basis points to tame inflation.

Notwithstanding the recent moderation noted in CPI headline print in October 2022, the headline print continues to remain outside RBI's target range for 10 consecutive months. Further, with a yawning gap existing between credit and deposit growth, an additional rate hike will incentivise savers, thus providing an impetus to deposit growth and help narrow the credit-deposit wedge.

Further, with rising global risk aversion adversely impacting our foreign capital inflows, CII stated that it poses challenges for the financing of our current account deficit.

In fact, we need to keep a watch on capital flows across all the three buckets, namely foreign direct investment (FDI), NRI flows and foreign portfolio flows (FPIs). High focus only on FPI numbers may not always provide a complete picture.

"The incipient signs of domestic recovery need to be preserved to help accelerate movement towards a normalised growth scenario. As in the past, the RBI should use all the weapons in its arsenal to ensure that while through its actions inflationary expectations are well anchored, it should in no way muzzle the growth impulses," CII highlighted.

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