Ahead of the monetary policy announcement by RBI, Fitch Ratings today said there is scope for monetary easing in India as retail inflation is holding below the 5 per cent target.
In its report titled '2017 Outlook: Emerging Asia Sovereigns', Fitch said India's growth outlook remains strong on the back of infrastructure spending and the 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 5 per cent by March 2017 and within the medium-term target range of 4 per cent (+/-) 2 per cent," Fitch said.
The government had in August notified 4 per cent inflation target (with an upper and lower tolerance levels of 6 per cent and 2 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 tomorrow amid expectations of a 0.25 per cent rate cut as retail inflation is below the short-term target of 5 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 CPI 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 GDP growth rates in 2017.
"The growth outlook is particularly strong in Bangladesh, India and the Philippines," it said, adding that India accounts for 14 per cent of the region's GDP.
Fitch believes that domestic growth drivers include infrastructure boost and implementation of ambitious reform agenda in some Asian economies, e.G. India and Indonesia.
However, public debt levels are high in some countries, including India, it said.
"India and Vietnam have favourable macroeconomic prospects, but weaknesses in their public finances have deterred Fitch from taking positive rating action," Fitch explained.
The US-based rating agency has a 'BBB-' rating for India with a 'stable' outlook.
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