Scope for further monetary easing on softer inflation: Fitch

India's growth outlook remains strong on the back of infrastructure spending and implementation of ambitious reform agenda, says Fitch

Ahead of the monetary policy announcement by the Reserve Bank of India (RBI), Fitch Ratings on Tuesday said there is scope for monetary easing in India, as retail inflation is holding below the target of five per cent.

In its report ‘2017 Outlook: Emerging Asia Sovereigns’, the rating agency said India’s growth outlook remains strong on the back of infrastructure spending and implementation of ambitious reform agenda.

“Further monetary easing is likely, for instance, in India, where inflation of 4.2 per cent in October 2016 was below the intermediate target of five per cent by March 2017 and within the medium-term target range of four per cent (+/-) two per cent,” Fitch said.

The government had in August notified four per cent inflation target (with an upper and lower tolerance levels of six per cent and two per cent, respectively) till 2021.

The interest rate-setting Monetary Policy Committee decides on the policy keeping in mind this inflation target.

The MPC, headed by RBI Governor Urjit Patel, will announce the policy review on Wednesday amid expectations of a 0.25 per cent rate cut as retail inflation is below the short-term target of five per cent by March.

The committee, in October, had cut benchmark interest rates by 0.25 per cent to 6.25 per cent. Retail or Consumer Price Index-based inflation dipped to 14-month low of 4.20 per cent in October while the one based on wholesale prices, or WPI, fell for the second consecutive month to 3.39 per cent. Fitch said some central banks in the emerging Asian economies may still find room for further monetary policy easing, given generally low consumer inflation.

It also expects all countries in Emerging Asia, except Mongolia, to exhibit higher gross domestic product (GDP) growth rates in 2017.