RBI likely to raise interest rates to 5.9% by December 2022: Fitch Ratings
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Fitch Ratings in its update to Global Economic Outlook has said the Reserve Bank of India (RBI) may raise interest rates further to 5.9 per cent by December 2022, on deteriorating inflation outlook. It stated India’s economy faces a worsening external environment, elevated commodity prices, and tighter global monetary policy. Last month in an unscheduled policy announcement, the Reserve Bank of India (RBI) raised rates by 40 basis points to 4.4 per cent, and subsequently to 4.9 per cent last week.
The RBI has forecast inflation to be 6.7 per cent by the end of current fiscal. The retail inflation for May came in at 7.04 per cent, while wholesale price-based inflation spiked to a record 15.88 per cent. It mentioned that inflation has risen to an eight-year high and broadens across more CPI categories, posing a severe challenge to consumers. In the past three months, food inflation has increased by an average of 7.3 per cent year-on-year, while healthcare bills are rising at a similar pace.
Further, it said the April-June quarter growth is likely to improve on a rebound in consumption as COVID-19 cases subsided towards end-March. Besides, it stated ‘GDP grew by 4.1 per cent year-on-year in 1Q22 (January-March) compared to our March forecast of 4.8 per cent. We now expect the economy to grow by 7.8 per cent this year (2022-2023), revised down from our previous forecast of 8.5 per cent.
