Strong growth in India provides room for the central bank to increase rates by a further 60 basis points in a bid to curb soaring inflation, according to a note published on Thursday by DBS Group Research.

India’s GDP in Q1 of this fiscal year likely rose 16% year-on-year, based on most leading indicators, the research house stated.

A positive base effect following the outbreak of the Delta variant of Covid in 2021 will also increase the year-on-year GDP figures, said DBS Group Research senior economist, Radhika Rao.

"Resumption in service sector activity added to the momentum, besides manufacturing," Rao said. DBS Group’s fiscal year 2022-2023 GDP growth forecast of 7% year-on-year will see the country become the fastest-growing economy in Asia this year, she went on to say.

Urban consumption received a boost from improved vaccination rates and an easing of lockdown restrictions, whilst unemployment rates reverted to pre-Covid levels, the economist added. In addition, in terms of investment, "lead indicators have been encouraging."

"Resilient growth provides the room for RBI to prioritise inflation," she said. Rao forecasts the Reserve Bank of India will increase rates by a further 60 basis points during the present fiscal year, in addition to the 140 basis point hikes already carried out, Reuters news agency reports.

Furthermore, the retail inflation rate in India has stayed over the central bank’s upper tolerance limit for seven consecutive months, the findings also revealed.

"Our call is for a 35 basis points hike in September, followed by another 25 basis points in December to take the repo rate to 6.0%, before settling into an extended pause,” Rao added.