The rating agency said it expects inflation to rise steadily to 4.5 per cent by December 2026 but it will remain well within the tolerance band of 2-6 per cent.

Fitch Ratings on Friday said persistently higher oil prices could cause India’s retail inflation to rise faster than the expected gradual pace, and lead to a slowdown in economic growth in the first half of financial year 2026-27 (FY27).

“There are tentative signs that real activity is slowing in January and February, for example in the PMI (Purchasing Managers’ Index) surveys, but the economy remains resilient, and credit growth is still in double digits.

“We expect growth to slow in 1HFY26/27; rising inflation will constrain real incomes, limiting consumer spending growth,” Fitch Ratings said in its latest Global Economic

However, the rating agency revised upward India’s growth forecast for FY27 by 30 basis points (bps) to 6.7 per cent. For FY26, the agency has estimated growth at 7.5 per cent.

The rating agency said it expects inflation to rise steadily to 4.5 per cent by December 2026 but it will remain well within the tolerance band of 2-6 per cent.

“Headline inflation has started to build from the lows associated with falling food prices last autumn, reaching 2.7 per cent in January, up from 1.2 per cent in December.

“Persistently higher oil prices could cause inflation to rise faster than the expected gradual pace,” it added.

Latest data released by the statistics ministry on Thursday showed February inflation rose to 3.2 per cent due to higher food inflation.

Fitch said the Reserve Bank of India’s (RBI’s) policy committee kept the policy rate at 5.25 per cent in February and reaffirmed a neutral stance for monetary policy.

“We expect interest rates to remain at this level this year and next,” it said.

Implications of the West Asia conflict

The rating agency said the implications of the West Asia conflict for Gulf Cooperation Council oil production and exports, including disruption to shipments through the Strait of Hormuz, could be equivalent to 20 per cent of global oil consumption.

“If the oil price were to rise to about $95-100 and stay there, global gross domestic product (GDP) could be reduced by about 0.4 per cent relative to the baseline after four quarters,” it said.

However, Fitch’s baseline assumption in this global economic outlook (GEO) is that oil prices remain in the $90-100 range through March – as the Strait remains effectively closed for around a month – before falling to the mid-$60s by the second half of 2026 in a fundamentally oversupplied mar­ket.

“This implies an annual average price of $70 in 2026, up from $63 in the December GEO.

“We believe this revision would not have a material impact on global growth, inflation or monetary policy,” it added.

On the assumption that the Iran war would not result in a larger or an enduring spike in energy prices that pushes its annual 2026 oil price forecast above $70/barrel, Fitch expects broadly steady world GDP growth at 2.6 per cent this year.