But the strong domestic demand would ensure that India maintains high growth. The moderation from last year’s 9.4 per cent to 8.6 per cent this year therefore reflected a soft landing, S&P said in its mid-year review.
Warning that interest rates in India were clearly peaking, with yields on gilts in a narrow range it expected the benchmark 10-year government securities to remain in the rage of 7.8-8 per cent until March 2008.

“Reserve Bank of India (therefore) is not expected to change the repo and reverse repo rate and the Cash Reserve Ratio (CRR) in its next quarterly announcement,” it said. The agency said that fiscal situation was very much under control in India with high direct tax collections and the budget target of 3.3 per cent fiscal deficit is expected to be easily met.

Turning to the price situation, it expected inflation to average around 5 per cent by March 2008 due to incomplete pass through of global crude oil prices.

Due to cumulative effect of high interest rates and rising currency, the industrial sector would experience a somewhat slower growth of 9.2 per cent, it said.