According to S&P, retail inflation in India would exceed 6% by the end of 2022.

S&P Global Ratings maintained its economic growth prediction for India at 7.3% in FY23 and 6.5% in FY24, with “risks weighted to the downside.” Retail inflation is expected to remain over the central bank’s medium-term objective of 2-6% through the end of 2022.

According to the agency’s new Economic Outlook for the Asia Pacific, rising global interest rates will continue to put pressure on central banks around the world through capital outflows and currency devaluation. According to Louis Kuijs, chief economist (Asia Pacific) at S&P Global Ratings, the impact of China’s sharp slowdown was mitigated by a robust comeback in India, where consumption, particularly of services, accelerated and investment expanded significantly.

India is in the spotlight. Consumer Price Inflation (CPI) is expected to continue over the Reserve Bank of India’s 6% upper tolerance limit till the end of 2022. This comes amid significant weather-related wheat and rice price hikes, as well as sticky core inflation. “Food inflation may rise again,” Kuijs said.

High core inflation would push policy rates even higher, with policy interest rates predicted to be 5.90% by the end of this fiscal year. This fiscal, the Reserve Bank of India has already hiked interest rates by 140 basis points to 5.4%. For the eighth month in a row, retail inflation has exceeded the RBI’s upper tolerance threshold. It also reversed a three-month decline and increased to 7% in August, up from 6.71% the previous month.

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