Fitch Solutions, the research arm of Fitch Group, in its latest report has said that the Reserve Bank of India (RBI) is expected to cut key interest rates by 175 basis points (bps) during the fiscal year starting April 1, up from earlier estimate of 40 bps reduction, in order to combat the economic shock from the coronavirus outbreak.
As per Fitch Solutions, India's real GDP growth is likely to pick up slightly to 5.4 per cent in 2020-21, from its estimate of 4.9 per cent in the current fiscal, while inflation is expected to ease significantly over the coming months on the back of the ongoing oil price war and also easing food inflation from improving food supply as the winter (Rabi) harvest feeds through from February. This easing of inflation towards the lower band of the RBI's 2-6 per cent target range over FY2020/21 would provide room for the central bank to ease monetary policy significantly.
The research arm of Fitch Group revised downwards its forecast for India's inflation to an average of 3 per cent in 2020-21 fiscal as compared to 3.5 per cent previous estimate. It also expects that the RBI is likely to follow suit and implement steep monetary easing as soon as possible over the coming meetings to support growth when inflation eases back within its 2-6 per cent target range.