New Delhi:
S&P Global Ratings on Tuesday maintained its forecast for India’s economic growth rate for the current financial year at 6.8%. S&P said it expects the Reserve Bank to start cutting interest rates from October. In its Asia Pacific Economic Outlook, S&P Global Ratings maintained its GDP growth forecast for the financial year 2025-26 at 6.9% and said that good growth in India will allow the Reserve Bank to focus on bringing inflation within the target.
S&P said that “In India, GDP growth moderated slightly in the June quarter as higher interest rates dampened urban demand, in line with our forecast of 6.8% GDP for the full fiscal year 2024-2025. The Indian economy grew at a rate of 8.2% in the previous fiscal year.”
Government’s focus is on fiscal consolidation and infrastructure
S&P said that the Union Budget presented in July showed that the government is committed to fiscal consolidation and focus on infrastructure. The budget also sets a capex target of Rs 11.11 lakh crore in the current financial year ending March 2025.
S&P said that the Reserve Bank considers food inflation as an obstacle to cutting interest rates. Unless there is a permanent decline in the rate of growth in food prices, it will be difficult to maintain headline inflation at 4%.
S&P said, there is no change in our outlook. We expect the RBI to start cutting rates in October at the earliest. S&P expects inflation to average 4.5% in the current financial year.
Monetary Policy Committee meeting will be held on 7-9 October
The Monetary Policy Committee, which decides the interest rate of RBI, is scheduled to meet on 7-9 October. RBI has kept the benchmark interest rate stable at 6.5% since February 2023 to keep inflation under control. RBI has been ordered by the government to keep inflation at 4% with a tolerance band of +/- 2%.
After the US Federal Reserve cut its benchmark interest rate by 50 basis points, there are expectations that the RBI may also cut it by 25 basis points next month.
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