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Category :
Economy
Headline :
Fitch retains India's growth forecast for FY'24 at 6.3%, flags inflation risks
Date:
14/09/2023 14:27
Fitch Ratings has reaffirmed its growth forecast for India's current fiscal year at 6.3 percent, citing the country's resilience despite tighter monetary policies and export weaknesses. However, they have revised their year-end inflation projection upwards due to the potential threat of El Ni¤o.
During the April-June quarter of the current fiscal year, the Indian economy recorded a growth of 7.8 percent, driven by a strong services sector and robust demand.
Fitch noted that India's economy continues to outperform its regional counterparts, despite facing challenges such as tighter monetary policies and export difficulties. They anticipate a growth rate of 6.5 percent for the next fiscal year.
In their September update of the Global Economic Outlook, Fitch indicated that high-frequency indicators suggest a potential moderation in growth for the July-September quarter. This is attributed to weakening exports, stagnant credit growth, and a slightly more pessimistic consumer sentiment based on the Reserve Bank of India's latest bimonthly consumer confidence survey.
Regarding inflation, Fitch anticipates temporary increases, particularly in food inflation, which could impact consumers' discretionary spending power. However, they believe that these inflationary effects will be short-lived, with other underlying economic factors also affecting the economy.
Fitch acknowledges that India may not be immune to the global economic slowdown and could be affected by the delayed impact of the Reserve Bank of India's interest rate hikes over the past year. Additionally, a poor monsoon season could further complicate the RBI's efforts to control inflation.
While annual headline inflation in India reached 6.8 percent in August, driven by rising food prices, Fitch maintains its benchmark interest rate forecast for the RBI at 6.5 percent by the end of the calendar year. They noted that the government has taken measures to address the food price issue, such as importing more food items, temporarily eliminating wheat import duties, and restricting sugar exports.
Fitch also highlighted the potential threat of El Ni¤o, which could lead to inflation exceeding their forecasts. Nevertheless, they expect retail or CPI inflation to be at 5.5 percent by the end of 2023, slightly higher than their previous projection of 5 percent.
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