India's economy: Extended tight monetary policy may curb growth further

The forward-looking policy bias might create room to lower rates in early 2025

India witnessed three years of heady growth, with average real gross domestic product (GDP) growth of around 8 per cent. Financial markets responded exuberantly to this world-leading performance. Recently, the growth momentum has moderated, which we view as a process of normalisation, returning to a more steady rate of expansion. This phase of strong growth was accompanied by concerning spillovers in some sectors, which macroprudential measures are now aiming to contain.

 

We address three aspects here. One, the factors driving this cyclical moderation in growth. Two, the “heady vs steady” argument extends to the consumer credit cycle. Three, whether an