S&P maintains India’s growth forecast at 6.8%, expecting interest rate cut in October

New Delhi| S&P Global Ratings on Tuesday maintained India’s growth forecast for the current fiscal year at 6.8 percent. With this, the rating agency has expressed hope that RBI will start cutting interest rates in its October monetary policy review.

In the economic outlook of Asia Pacific, S&P Global Ratings has maintained the GDP growth forecast for FY 2025-26 at 6.9 per cent and said that solid growth in India will enable the Reserve Bank to focus on bringing inflation within its prescribed range.

“GDP growth in India slowed in the June quarter, as higher interest rates impacted urban demand, this is in line with our estimate of 6.8 per cent GDP for the entire FY 2024-2025″, S&P said. ” The Indian economy had grown by 8.2 percent in the previous financial year. S&P said the government will continue to commit public expenditure for fiscal consolidation and infrastructure improvements as per the Union Budget presented in July. The budget has earmarked a capital expenditure of Rs 11.11 lakh crore in the current financial year ending March 2025.

S&P said that RBI (Reserve Bank of India) considers food inflation as an obstacle to rate cuts. It believes it will be difficult to maintain headline inflation at 4 per cent unless there is a lasting and meaningful decline in the rate of increase in food prices.

“Our outlook remains unchanged: We expect the RBI to begin cutting rates in October at the earliest and plan to cut rates twice this fiscal year (the year ending March 2025)”, S&P said.

S&P expects inflation to average 4.5 percent in the current fiscal year. The Monetary Policy Committee, which sets the RBI’s interest rate, is scheduled to meet on October 7-9. To keep inflation under control, the central bank has kept the benchmark interest rate stable at 6.5 percent since February 2023.

Government directs RBI to keep inflation at 4 per cent, with room for fluctuation of +/- 2 per cent. After the US Federal Reserve cut its benchmark interest rate by 50 basis points, there are expectations that the RBI may also cut interest rates by 25 basis points in next month’s monetary policy review.