Dynamics of inflation growth make policymaking tough in India: Fitch

15 Nov '21

2 min read

Pic: Fitch Solutions

Policymaking could become slightly more challenging in the near future in India due to higher inflationary pressures, stronger growth and still-wide fiscal deficits, Fitch Solutions recently cautioned. The market is pricing in 30-40 basis point hikes by December, which poses upside risks to the company’s forecast of 4 per cent in repo rate by end of 2021.

Fitch Solutions’ country risk and industry research unit said in its outlook for India that the headline inflation rate came in at 4.4 per cent year on year (YoY) in September, which was lower than in the previous month (5.3 per cent), but fuel prices continue to head higher, rising by 13.6 per cent, up from 13 per cent in August, and 12.6 per cent three months ago.

It said the Indian government’s move to cut excise duty on petrol and diesel should help ease price pressures somewhat. Brent crude oil prices would average $72 a barrel in 2022, which will add additional pressure to the government’s fiscal accounts, which will post a deficit of 9.1 per cent of the gross domestic product (GDP).

Year-to-date inflation averaged 5.2 per cent, which is slightly below Fitch Solution's full-year forecast of 5.5 per cent for 2021.

"The good news is that inflation remains within the Reserve Bank of India’s target and the government reappointed the central bank Governor Shaktikanta Das for another three-year term, which will ensure policy continuity," it said.

Fibre2Fashion News Desk (DS)

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