S&P Global ratings has kept its forecast for India’s gross domestic product (GDP) growth for the current financial year at 6.8%, and predicted two rate cuts by the Reserve Bank of India by the current financial year.
The rating agency’s growth forecast is lower than RBI’s estimate of 7.2% and, and in sync with the Economic Survey’s forecast range of 6.5-7%. For next financial year, it has forecast India’s GDP to grow 6.9%.
“In India, GDP growth moderated in the June quarter as high interest rates temper urban demand. The July budget confirmed that the government remains committed to fiscal consolidation and to keeping the focus of public expenditure on infrastructure,”S & P said in its economic outlook for Asia-Pacific.
In April-June quarter India’s growth fell to 6.7% as general elections weighed on government expenditure.
Other forecasts from the World Bank, the International Monetary Fund and Asian Development Bank (ADB) have estimated 7% growth for India in 2024-25. Fitch and Moody’s forecast growth rate of 7.2%.
“We expect the RBI to begin cutting rates in October at the earliest and have pencilled in two rate cuts this fiscal year,” the report said. It expects the repo rate, which is at 6.5% to come down to 6% by the end of this financial year.
The RBI considers food inflation a hurdle for rate cuts. It reckons that unless there is a lasting and meaningful decline in the rate at which food prices are increasing it will be tough to maintain headline inflation at 4%. For this FY the S&P has forecast inflation to be at 4.5%, which is the same as RBI’s target.
India along with Indonesia and Philippines are the only countries in the region where rates are higher than the US. India’s repo rate has stayed at 6.5% since February last year. The US Federal Reserve last week cut rates by 50 basis points to 4.8% last week. After the rate cuts in the US, there are expectations that other central banks in Asia, including RBI will follow. Some research reports say that rate cuts in India will come only in December or later.