Fitch cuts India growth forecast for 2022-23 to 8.5% from 10.3%

The rating agency also raised its inflation forecast for India, saying it could reach as high as 7%.

The rating agency also raised its inflation forecast for India, saying it could reach as high as 7%.

NEW DELHI

Fitch Ratings on Tuesday cut its 2022-23 growth forecast for India to 8.5% from 10.3%, citing significantly higher energy prices it believes will push inflation above 7% as oil companies tighten price hikes eventually pass on to retail customers.

“Global inflation has returned with a vengeance after an absence of at least two decades. This is starting to feel like a moment of change in inflation regime,” said Brian Coulton, chief economist at Fitch Ratings.

The rating agency also raised its inflation forecast for India. “Local fuel prices have been flat for the past few weeks, but we expect oil companies to eventually pass higher oil prices through to retail fuel prices (with some offset from a government excise duty cut),” she noted .

“We are now seeing inflation strengthening further, peaking at over 7% in Q3 22 before gradually easing. We expect inflation to remain high throughout the forecast period, at 6.1% annual average in 2021 and 5% in 2022,” the agency said.

Noting that India’s GDP growth was very strong in the September-December quarter of 2021, Fitch also upgraded its growth forecast for 2021-22 to 8.7% from the previous 8.1%.

“India’s GDP is more than 6% above its pre-pandemic level, although it is still well below its implied pre-pandemic trend,” Fitch said in its Global Economic Outlook report, which sets out its forecast for world GDP -Growth for 2022 has reduced to 3.5% from 4.2%.

Fitch stressed that India’s policy normalization has been superficial so far and the central bank is prioritizing economic recovery over tackling inflation “amid a still large output gap,” and said it still expects the repo rate to rise by December will rise to 4.75% this year. from the current 4%.

“The reverse repo rate – which has become the effective driver of money market rates since the pandemic began – is likely to be increased by a larger amount,” the agency said.

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