S&P retains India's FY25 growth forecast at 6.8%, expects rate cut in Oct

The global credit ratings agency S&P Global on Tuesday retained India's growth forecast at 6.8 per cent for the current financial year and expressed optimism that the Reserve Bank of India (RBI) would start cutting interest rates in its October monetary policy review.

“In India, GDP growth moderated in the June quarter as high interest rates temper urban demand, in line with our projection of 6.8 per cent GDP growth for the full financial year 2024-2025,” said S&P in its latest economic outlook for Asia-Pacific.

Additionally, the rating agency retained its GDP growth forecast for FY26 at 6.9 per cent and stated that solid growth in India would allow the RBI to focus on bringing inflation in line with its target.

“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 per cent. 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 financial year,” S&P said.

S&P expects inflation to average 4.5 per cent in the current financial year.

The RBI’s interest rate-setting monetary policy committee (MPC) is set to meet on October 7-9. The central bank has held the benchmark interest rate steady at 6.5 per cent since February 2023 to keep inflation under check.

The RBI has been mandated by the government to keep inflation at 4 per cent with a tolerance band of +/- 2 per cent.

After the US Federal Reserve cut its benchmark interest rate by 50 basis points, there have been expectations that the RBI may also go in for a 25 basis points cut in the policy review next month.

Meanwhile, Moody’s Analytics noted in its latest Asia-Pacific outlook released on Tuesday that the Indian economy will likely grow at 7.1 per cent in 2024, up from 6.8 per cent predicted earlier. It also kept the country’s growth forecast unchanged at 6.5 per cent for 2025, while it projected faster growth of 6.6 per cent in 2026.

“After a strong post-pandemic rebound of 7.8 per cent in 2023, Indian GDP growth will slow to 7.1 per cent in 2024 and 6.5 per cent in 2025,” Moody’s Analytics said.
 

	FY25 Forecast
IMF	7
S&P	6.8
World Bank	7
RBI	7.2

Source: BS Research