S&P Global Ratings has maintained India's growth forecast at 6.8% for the current fiscal year and anticipates the Reserve Bank of India (RBI) to begin cutting interest rates in its upcoming monetary policy review in October.
In its economic outlook for the Asia Pacific, S&P also reaffirmed its GDP growth projection for the 2025-26 fiscal year at 6.9%, noting that robust growth in India will enable the RBI to focus on aligning inflation with its target.
"In India, GDP growth moderated in the June quarter as high interest rates tempered urban demand, in line with our projection of 6.8% GDP for the full fiscal year 2024-2025," S&P stated. The Indian economy recorded an 8.2% growth in the previous fiscal year.
S&P highlighted that the Union Budget released in July demonstrates the government's commitment to fiscal consolidation, with a focus on public expenditure for infrastructure, allocating Rs 11.11 lakh crore in capital expenditure for the current fiscal ending in March 2025.
The agency noted that the RBI views food inflation as a significant barrier to rate cuts, suggesting that unless there is a sustained and meaningful decline in food price increases, maintaining headline inflation at 4% will be challenging.
"Our outlook remains unchanged: we expect the RBI to begin cutting rates in October at the earliest and have pencilled in two rate cuts this fiscal year (ending March 2025)," S&P added, forecasting inflation to average 4.5% for the current fiscal.
The RBI's monetary policy committee is scheduled to meet from October 7-9, with the central bank having kept the benchmark interest rate steady at 6.5% since February 2023 to control inflation.
The RBI has been tasked by the government to maintain inflation at 4% with a tolerance band of +/- 2%. Following a recent 50 basis point cut by the US Federal Reserve, expectations have risen that the RBI may implement a 25 basis point cut in the upcoming policy review.
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