The rating agency Fitch in its press release said that the Reserve Bank of India (RBI) will start raising its repo rates from the next year.
It said, "We expect the RBI to start raising its policy repo rate next year from 6 percent currently as growth gains further traction."
As per the rating agency, RBI has been building a solid monetary policy since the formation of Monetary Policy Committee in October 2016 as it has kept consumer inflation (CPI) within the target range of 4 percent.
In the month of March, CPI inflation stood at 4.28 percent, slow for the third month in a row. Fitch noted the monetary tightening could come forward if policies like 1.5 times increase in minimum support prices for agricultural goods and increased customs duties on electronic goods, etc could push inflationary expectations.
It also noted the insufficient FDI inflows to cover the widening current account deficit. FDI (Foreign Direct Investment ) has fallen to $23.7 billion in three quarters of 2017-18 from $30.6 billion in the previous year.
It expects the basic balance to widen from -0.5 percent in 2017-18 to -1.3 percent of GDP in 2019-20.
Fitch said that the Indian government's welcoming policies towards foreign investors like 100 percent FDI in single brand retail could help the economy to recover from the FDI decline.