New Delhi: S&P Global Ratings announced on Tuesday that it is maintaining India’s growth forecast at 6.8% for the current fiscal year, alongside expectations that the Reserve Bank of India (RBI) will initiate interest rate cuts in its upcoming monetary policy review scheduled for October.
In its economic outlook for the Asia Pacific region, S&P also upheld its GDP growth forecast for the 2025-26 fiscal year at 6.9%, emphasizing that robust growth in India will enable the RBI to focus on aligning inflation with its targets.
“India’s GDP growth moderated in the June quarter, influenced by high interest rates affecting urban demand, consistent with our projection of 6.8% for the entire fiscal year 2024-2025,” S&P noted. The Indian economy had previously recorded an impressive growth rate of 8.2% in the last fiscal year.
The ratings agency highlighted that the Union Budget presented in July reflects the government’s commitment to fiscal consolidation and prioritizing public expenditure on infrastructure projects. Notably, the Budget has allocated a significant capital expenditure of Rs 11.11 lakh crore for the current fiscal year ending March 2025.
S&P pointed out that food inflation poses a challenge for potential rate cuts. It indicated that a sustained and substantial reduction in food price inflation is necessary to maintain the headline inflation target of 4%. “Our outlook remains unchanged: we anticipate the RBI will begin cutting rates as early as October and expect two rate cuts this fiscal year (ending March 2025),” S&P stated.
The agency forecasts that inflation will average around 4.5% in the current fiscal year. The RBI’s monetary policy committee is scheduled to meet from October 7-9. Since February 2023, the central bank has kept the benchmark interest rate steady at 6.5% to manage inflation levels.
The government has tasked the RBI with maintaining inflation at 4%, within a tolerance band of +/- 2%. Following the recent 50 basis points cut by the US Federal Reserve, there is growing speculation that the RBI may consider a 25 basis points reduction in its policy review next month.
In a report released last Thursday, S&P Global projected that India is on track to become the third-largest economy by 2030-31, supported by a projected annual growth rate of 6.7% for the current fiscal year. The report emphasized that, following an 8.2% growth rate in FY2024, ongoing reforms are essential for enhancing business transactions, improving logistics, encouraging private sector investment, and decreasing reliance on public capital.
