S&P keeps India’s growth forecast at 6.8%, expects RBI to cut interest rates in October

On Tuesday, S&P Global Ratings maintained its growth forecast for India at 6.8% for the current fiscal year and said it expects the RBI to start cutting interest rates in its monetary policy review in October. On the Asia Pacific economic outlook, S&P Global Ratings also GDP growth Stating that inflation is estimated at 6.9 per cent for the fiscal year 2025-26, the central bank said that strong growth in India will enable the central bank to focus on bringing inflation in line with the target.

“India’s GDP growth slowed in the June quarter as higher interest rates restrained urban demand. This is in line with our forecast of 6.8 per cent GDP for the fiscal year 2024-2025,” S&P said.

The Indian economy grew by 8.2 percent in the last fiscal year.

S&P said the Union Budget in July indicated that the government remained committed to fiscal consolidation and continued focus of public spending on infrastructure. The Budget has earmarked a capital expenditure of Rs 11.11 lakh crore in the current fiscal year ending March 2025.

S&P said that RBI (Reserve Bank of India) sees food inflation as a barrier to rate cuts. It feels that unless there is a sustained and meaningful decline in the rate of increase in food prices, it will be difficult to keep headline inflation at 4%.

“Our outlook remains the same: We expect the RBI to start cutting rates in October at the earliest and have planned two rate cuts this fiscal (the year ending March 2025),” S&P said. S&P expects inflation to average 4.5% in the current fiscal. The RBI’s rate-setting monetary policy committee will meet from October 7-9. The central bank has kept the benchmark interest rate unchanged at 6.5% since February 2023 to keep inflation in check.

The government has authorized the Central Bank to keep inflation at 4% with a tolerance range of +/- 2%.

Following the US Federal Reserve’s (Fed) 50 basis points cut in interest rates, there were expectations that the Reserve Bank of India (RBI) may cut the policy rate by 25 basis points in its policy review next month.