Speculation over potential rate cuts has gained traction following the U.S. Federal Reserve’s decision to lower rates by 50 basis points last week, raising expectations that this move could influence central banks globally, including India’s
S&P Global Ratings has reaffirmed India’s economic growth forecast at 6.8% for the financial year 2024-25, while indicating that the Reserve Bank of India (RBI) could initiate interest rate cuts as early as October. This projection, part of S&P’s economic outlook for the Asia-Pacific region, also included a GDP growth estimate of 6.9% for FY 2025-26, reflecting confidence in India’s robust economic trajectory, business-standard.com reported.
According to S&P, India’s GDP growth had moderated in the June quarter, with high interest rates curbing urban demand, aligning with their forecast of 6.8% GDP growth for the current financial year. The report also highlighted that in FY24, India’s economic growth rate had peaked at an impressive 8.2%. S&P credited the nation’s strong growth for giving the RBI the flexibility to tackle inflation effectively.
Focus on Fiscal Consolidation
In addition to its growth projections, S&P emphasized the Indian government’s focus on fiscal consolidation. This aligns with Finance Minister Nirmala Sitharaman’s commitment during the July Budget to reduce the fiscal deficit to below 4.5% of GDP by FY26. The Centre had also announced an allocation of ₹11.11 trillion towards capital expenditure, reflecting its long-term growth ambitions.
S&P’s outlook remained steady, predicting the RBI would execute two rate cuts during the financial year ending March 2025, starting as early as October 2024. The credit rating agency underscored that controlling food inflation would be key for the RBI to achieve its inflation target of 4%. Without a sustained reduction in food prices, maintaining this target would be challenging, S&P warned. For the current financial year, the agency forecasted average inflation at 4.5%.
RBI’s Upcoming Policy Decision
The next significant event for monetary policy is the RBI’s Monetary Policy Committee (MPC) meeting scheduled for October 7-9, where rate adjustments are likely to be debated. However, contrasting views have emerged. While S&P expects rate cuts, the State Bank of India (SBI) recently suggested the RBI might refrain from such moves due to ongoing concerns over food inflation.
The MPC has kept interest rates steady at 6.5% for nine consecutive policy reviews since February 2023. Speculation over potential rate cuts has gained traction following the U.S. Federal Reserve’s decision to lower rates by 50 basis points last week, raising expectations that this move could influence central banks globally, including India’s.
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