Fitch Ratings on Thursday slashed its India growth forecast for the current fiscal to 7 per cent from 7.8 per cent previously in June, citing elevated inflation levels and higher interest rates as it joined other agencies in reducing the forecast.

Fitch also forecast lower growth of 6.7 per cent in FY24 from its earlier estimate of 7.4per cent. In its Global Economic Outlook September 2022, the rating agency said India’s GDP growth of 13.5 per cent in April-June was below its expectation of an 18.5 per cent increase in June.

“We expect the economy to slow given the global economic backdrop, elevated inflation and tighter monetary policy. Inflation moderated in August as crude oil prices eased, but the risk to food inflation persists given negative seasonality towards the end of this year,” it said.

Wholesale price-based inflation softened to an 11- month low of 12.41 per cent in August, even though retail inflation inched up to 7 per cent. Fitch joins other agencies that have downgraded India’s growth recently. Core inflation — which excludes food, fuel and light— remained elevated at 6 percent while inflation expectations are also high.

The RBI’s latest survey of household inflation expectations eased in July but they are still far above pre-pandemic levels. Inflation expectations could risk triggering second-round effects on growth. “While the RBI expects monthly inflation data to be volatile in the near term, its expectation is for consumer price inflation (CPI) to ease towards the end of that year,” it said.

The RBI has raised its benchmark repo rate by 140 basis points since May, including 50 basis points last month, to 5.4 per cent. “We expect the RBI to raise rates to 5.9 per cent before year-end,” Fitch said.