Higher rates feeding through to real economy

The RBI has hiked interest rates by 190bps since May and, while that is relatively benign compared to the moves seen in many other EMs, this tightening is now feeding through to the economy. Purchases of big ticket items such as passenger vehicles have dropped, chiming with the slowdown in personal loans growth. Lower-profile indicators point to a slowdown in investment too. (See Chart 1.) GDP data due next week are likely to show that investment growth slowed from 20% y/y in Q2 (Q1 of FY22/23) to around 7% y/y in Q3. Some of that is due to a less favourable base, but it implies slower q/q growth too. More timely survey data suggest that firms have since dialled back on investment intentions. In terms of the policy implications, there is nothing in the data to cause panic at the RBI. But it does support our view that the central bank will opt to slow the pace of rate hikes in its upcoming meeting in early December.

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