Global rating agency Standard & Poor (S&P), said on Thursday that Surging inflation, fuelled by energy and commodity prices coupled with interest rate hikes by the Reserve Bank of India (RBI), could pull down India’s economic growth to 7.8 per cent from the projected eight per cent this fiscal. The company is expecting inflation to average 8.5-9.0 per cent this year.

Reserve Bank of India (RBI) on Tuesday raised its cash reserve ratio and the repo rate by half a percentage points each.
 
Higher interest rates are expected to moderate growth even further.

 Subir Gokarn, chief economist, S&P (Asia-Pacific), said: "We expect the inflation rate to average 8.5 per cent to 9.0 per cent during 2008-09."

The food scenario however has improved because of the comfortable levels of wheat stocks and expectations of normal monsoon this year.

 However, high oil prices, strong input costs and a depreciating rupee continue to exacerbate inflationary and other pressures.

The rising inflation, a slowdown forecast in economic growth and turmoil in global financial markets have decreased investor confidence and led to foreign capital outflow.