The Reserve Bank of India on Thursday retained the growth projection at 7.2% for the current fiscal amid expectations of a normal monsoon. In its last bi-monthly monetary policy review in June, RBI had projected real GDP growth at the same.
RBI Governor Shaktikanta Das while announcing bi-monthly monetary policy said that improved agricultural activity brightens the prospects of rural consumption, while sustained buoyancy in services activity would support urban consumption.
“The healthy balance sheets of banks and corporates; thrust on capex by the government; and visible signs of pick up in private investment would drive fixed investment activity. Improving prospects of global trade are expected to aid external demand,” he said.
The spillovers from protracted geopolitical tensions, volatility in international financial markets and geoeconomic fragmentation, however, pose risks on the downside, he said.
Taking all these factors into consideration, he said, real GDP growth for 2024-25 is projected at 7.2%, with Q1 at 7.1%; Q2 at 7.2%; Q3 at 7.3%; and Q4 at 7.2%.
Real GDP growth for Q1 FY26 is projected at 7.2%, he said, adding, the risks are evenly balanced.
“It may be seen that we have slightly moderated the growth projection for Q1 of the current year in relation to the June 2024 projection. This is primarily due to updated information on certain high-frequency indicators which show lower than anticipated corporate profitability, general government expenditure and core industries output,” he said.
Under the current monetary policy setting, he said, inflation and growth are evolving in a balanced manner and overall macroeconomic conditions are stable.
“Growth remains resilient, inflation has been trending downward and we have made progress in achieving price stability, but we have more distance to cover. The progress towards our goal of price stability has been uneven due to large and persistent supply side shocks, especially in food items,” he said.
RBI, therefore, need to remain vigilant to ensure that inflation moves sustainably towards the target, while supporting growth, he said, adding, that this approach would be net positive for sustained high growth.
Nikhil Gupta, Chief Economist, MOFSL Group, said, “As broadly expected, the RBI kept interest rates unchanged. What probably was more important was the Governor’s emphasis on the headline inflation (with food inflation playing an important role) and the focus on inflation deceleration when growth remains so good. This, to our mind, indicates that rate cuts are not coming anytime soon (unless growth falters).”
“Overall, the policy and the forward guidance was in line with our expectations and we appreciate the RBIs resolve to focus on inflation at this time when the growth is so strong,” Gupta added.
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank said, with growth remaining robust, the MPC still has room to hold on to policy stance to get confirmation on the disinflationary trend.
“We continue to expect scope for change in stance in the October policy with rate cuts beginning from December. The prospects of simultaneous change in stance and rate cuts could increase depending on how domestic inflation and global environment transitions,” she said.