Fitch expects RBI to hike interest rates to 5.9% by the end of December

15 Jun 2022 , 09:24 AM

Fitch Ratings stated on Tuesday(14-06-2022) that the Reserve Bank of India (RBI) might raise its policy rate by another 100 basis points to 5.9% by December 2022.

“With inflation on the increase, the Reserve Bank of India (RBI) became more hawkish in April, creating the new Standing Deposit Facility (SDR) to replace the reverse repo rate and establish a new, higher interest rate floor for the interest rate corridor.

The RBI lifted rates by 40 basis points to 4.4 % in an unexpected policy statement in May, and then to 4.9 % in June. Given the worsening inflation outlook, we now anticipate the RBI to raise rates to 5.9% by December 2022, 6.15 % by the end of 2023 (vs. the earlier prediction of 5%), and remain steady in 2024,” it stated in its recent Global Economic Outlook.

Fitch revised India’s sovereign rating outlook from negative to stable last week, leaving the sovereign rating at the lowest investment grade.

According to Covid-19 cases declining in late March, economic growth will increase in the June quarter of FY23 from 4.1 % in the March quarter of FY22 due to a rebound in consumption. “We expect consumer spending to maintain the economy in 2022, given the possibility for a catch-up, as limitations are eased, allowing for increased expenditure in sectors like retail, hotels, and transportation,” it added.

Fitch has already lowered its India growth prediction to 7.8% in FY23, down from an earlier estimate of 8.5 %.