How RBI has cut the growth rate by raising it

Oddly enough, even though RBI has cut the full-year GDP growth forecast, it has raised it for the last three of the four quarters.

Written by Udit Misra

New Delhi | Updated: September 30, 2022 07:37 PM IST

3 min read

RBI Governor Shaktikanta Das. (Express Photo)

In its latest monetary policy review, the RBI has done two things. One, raised the repo rate (or the rate at which it lends money to the banking system) by 50 basis points (or 0.5 percentage points). Two, it has cut India’s GDP growth rate for the current financial year (2022-23) from 7.2% to 7%.

Why did RBI cut the growth forecast?

Governor Shaktikanta Das started his statement by stating that the global economy is undergoing a third shock — after Covid and the war in Ukraine — and that this time it is a “storm” arising from aggressive monetary policy actions and even more aggressive communication from Advanced Economy (AE) central banks.

Simply put, when AE central banks, especially the US Federal Reserve, raise interest rates aggressively (in a bid to contain inflation in their economies) it also forces economies such as India to raise interest rates. If India does not then its currency would be even more under pressure and lose even more against the dollar because better returns in the US pull global investors out of emerging economies.

But such aggressively tightening also slows down the respective economies. Given the fact that India’s Q1 GDP growth was slower than expected — India grew by 13.5% but RBI had expected it to grow by 16.2% — it was expected that India’s overall growth forecast of 7.2% might take a hit.
Another reason for cutting the growth forecast was the fact that since April when RBI first came out with the growth forecast of 7.2% for 2022-23, interest rates have gone up by a whopping 190 basis points. This had to take its toll on the growth rate regardless of the slower-than-expected Q1 data.

That is why Indian Express had reported that RBI will likely cut the growth rate.

How RBI has cut the growth rate by raising it

The Oddity

But, oddly enough, the RBI has arrived at a lower GDP growth rate for FY23 by actually raising the forecasts for the rest of the financial year (see Table).

Story continues below this ad

In the August policy, RBI stated the following for growth forecast: “Taking all these factors into consideration, the real GDP growth projection for 2022-23 is retained at 7.2 per cent, with Q1 at 16.2 per cent; Q2 at 6.2 per cent; Q3 at 4.1 per cent; and Q4 at 4.0 per cent, and risks broadly balanced.”

In the September policy, released today, states: “Taking all these factors into consideration, real GDP growth for 2022-23 is projected at 7.0 per cent with Q2 at 6.3 per cent; Q3 at 4.6 per cent; and Q4:2022-23 at 4.6 per cent, with risks broadly balanced.”

It is unclear why RBI has revised the GDP growth upwards when it is dialling down the overall GDP growth rate and heading into a scenario when interest rates will continue to remain high.

Udit Misra

Udit Misra is Senior Associate Editor at The Indian Express. Misra has reported on the Indian economy and policy landscape for the past two decades. He holds a Master’s degree in Economics from the Delhi School of Economics and is a Chevening South Asia Journalism Fellow from the University of Westminster. Misra is known for explanatory journalism and is a trusted voice among readers not just for simplifying complex economic concepts but also making sense of economic news both in India and abroad. Professional Focus He writes three regular columns for the publication. ExplainSpeaking: A weekly explanatory column that answers the most important questions surrounding the economic and policy developments. GDP (Graphs, Data, Perspectives): Another weekly column that uses interesting charts and data to provide perspective on an issue dominating the news during the week. Book, Line & Thinker: A fortnightly column that for reviewing books, both new and old. Recent Notable Articles (Late 2025) His recent work focuses heavily on the weakening Indian Rupee, the global impact of U.S. economic policy under Donald Trump, and long-term domestic growth projections: Currency and Macroeconomics: "GDP: Anatomy of rupee weakness against the dollar" (Dec 19, 2025) — Investigating why the Rupee remains weak despite India's status as a fast-growing economy. "GDP: Amid the rupee's fall, how investors are shunning the Indian economy" (Dec 5, 2025). "Nobel Prize in Economic Sciences 2025: How the winners explained economic growth" (Oct 13, 2025). Global Geopolitics and Trade: "Has the US already lost to China? Trump's policies and the shifting global order" (Dec 8, 2025). "The Great Sanctions Hack: Why economic sanctions don't work the way we expect" (Nov 23, 2025) — Based on former RBI Governor Urjit Patel's new book. "ExplainSpeaking: How Trump's tariffs have run into an affordability crisis" (Nov 20, 2025). Domestic Policy and Data: "GDP: New labour codes and opportunity for India's weakest states" (Nov 28, 2025). "ExplainSpeaking | Piyush Goyal says India will be a $30 trillion economy in 25 years: Decoding the projections" (Oct 30, 2025) — A critical look at the feasibility of high-growth targets. "GDP: Examining latest GST collections, and where different states stand" (Nov 7, 2025). International Economic Comparisons: "GDP: What ails Germany, world's third-largest economy, and how it could grow" (Nov 14, 2025). "On the loss of Europe's competitive edge" (Oct 17, 2025). Signature Style Udit Misra is known his calm, data-driven, explanation-first economics journalism. He avoids ideological posturing, and writes with the aim of raising the standard of public discourse by providing readers with clarity and understanding of the ground realities. You can follow him on X (formerly Twitter) at @ieuditmisra ... Read More

Tags:

RBI Shaktikanta Das

How RBI has cut the growth forecast by raising it

Oddly enough, even though RBI has cut the full-year GDP growth forecast, it has raised it for the last three of the four quarters.