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15
March 2018
 |
RBI
(The Total Investment & Insurance Solutions)
The
Reserve Bank of India (RBI) is expected to start raising interest rates next
year as growth gains further traction amidst high inflationary pressures, says
a research report. The Total Investment
& Insurance Solutions
In its
latest Global Economic Outlook (GEO) report, Fitch Ratings says, "Indian
economy continued its bounce-back in the final quarter of 2017, growing
7.2%. The
influence of one-off, policy-related factors, which had been dragging down
growth, has now waned. The money supply recovered to its pre-demonetisation
level in mid-2017 and is now increasing steadily, similar to the previous
trend. Meanwhile, disruptions related to the rollout of the goods and services
tax in July 2017 have gradually diminished.”
According
to the ratings agency, inflation has increased quite sharply in recent months,
rising from a 2017 mid-year low of 1.5% to 5.2% last December before easing
back slightly to 4.4% in February 2018. Accelerating food prices were the main
cause of the pick-up in headline inflation. By contrast, fuel price increases
have been contained by the government’s decision to roll back excise duties to
keep pump prices stable in the face of rising oil prices. We expect inflation
to hover a bit below 5% in 2018 and 2019, in the upper band of the Reserve
Bank’s target, Fitch added. The Total
Investment & Insurance Solutions
The
budget for FY2018-19, unveiled in February, envisages a slower pace of fiscal
consolidation and therefore should support the near-term growth outlook, Fitch
says, adding, "It contains measures that will benefit low-income earners
such as a minimum price support and free health insurance and support rural
demand. The government also plans to ramp up infrastructure outlays, in
particular by state-owned enterprises. Those policies come on top of a
substantial road construction plans and a bank recapitalisation plan announced
late last year, which should also provide some support to growth in the medium
term."
"Minimum
support price (MSP) scheme for agricultural products and increased customs
duties on certain products like electronics, textiles and auto parts will boost
prices against a backdrop of accelerating growth," Fitch added.
According
to Fitch's GEO, world economy is experiencing boom-like growth conditions and
central banks are becoming less cautious as inflation risks rise. The US,
Eurozone and China are all likely to grow well above trend in 2018 and global
economic growth is set to remain above 3% for three consecutive years until 2019,
a performance not achieved since the mid-2000s.
"The
acceleration in private investment, pro-cyclical US fiscal easing and global
monetary policies that are still very loose are all boosting growth in the
advanced economies, while high commodity prices and the weakening of the dollar
have underpinned the emerging market recovery. China is gently touching the
brakes but is still prioritising high growth in the near term," Brian
Coulton, Chief Economist at Fitch, concluded.The Total Investment & Insurance Solutions
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