S&P Global Retains India's Growth Forecast Amid RBI's Expected Rate Cuts

S&P Global Ratings has maintained India's growth forecast at 6.8% for the current fiscal year and expects the RBI to start cutting interest rates in October. Solid growth will help the Reserve Bank focus on managing inflation. The Indian economy grew 8.2% last fiscal, while the Union Budget emphasizes fiscal consolidation and infrastructure spending.

S&P Global Ratings on Tuesday reaffirmed its forecast for India's economic growth at 6.8 percent for the current fiscal year, predicting that the Reserve Bank of India (RBI) will begin cutting interest rates in its October monetary policy review.

The ratings agency also maintained India's GDP growth forecast for the 2025-26 fiscal year at 6.9 percent, citing solid growth that will allow the central bank to concentrate on aligning inflation with its target. In the June quarter, GDP growth moderated due to high interest rates, in line with S&P's projection for 2024-2025.

S&P highlighted that the Union Budget in July underscores the government's commitment to fiscal consolidation and prioritizing public expenditure on infrastructure, with a capital expenditure of Rs 11.11 lakh crore earmarked for the current fiscal year. However, food inflation is seen as a key obstacle for interest rate cuts, with maintaining headline inflation at 4 percent being a challenge unless a meaningful decline in food prices is achieved.

Looking ahead, S&P expects the RBI to implement two rate cuts by the end of March 2025, with inflation anticipated to average 4.5 percent for the current fiscal year. The RBI's monetary policy committee will meet on October 7-9, having maintained the benchmark interest rate at 6.5 percent since February to manage inflation. In light of the US Federal Reserve's recent 50 basis points rate cut, there are expectations of a similar move from the RBI in the upcoming policy review.

(With inputs from agencies.)