India’s rate cut likely from Oct, GDP steady at 6.8%: S&P Global

The Reserve Bank of India (RBI) may opt for two rate cuts beginning October in the ongoing fiscal year, says a new forecast of S&P Global Ratings.

The US-based credit rating agency S&P adds India’s Gross Domestic Product (GDP) growth should remain steady at 6.8 per cent for the fiscal year 2024-’25, or FY25, and should reach 6.9 per cent in the next fiscal year (FY26).

INFRA SPEND IS PRIORITY

“In India, GDP growth moderated in the June quarter as high interest rates temper urban demand. The July budget confirmed that the government remains committed to fiscal consolidation and to keeping the focus of public expenditure on infrastructure,” S&P Global’s economic outlook for the Asia-Pacific says, explaining its GDP prediction for FY25.

India’s growth rate dipped slightly to 6.7 per cent in the April-June quarter of the current fiscal year because of government expenses owing to the general elections, the agency’s report adds.

The agency’s GDP growth prediction of 6.8 per cent for FY25 is, incidentally, lesser than the RBI’s projected rate of 7.2 per cent but is in tune with the Economic Survey prediction that India’s GDP will grow in the range of 6.5 per cent to 7 per cent this fiscal year. The growth rate projected by Fitch and Moody’s is 7.2 per cent while the World Bank, the International Monetary Fund (IMF) and the Asian Development Bank (ADB) have pinned India’s growth at 7 per cent for FY25.

GOVT MAY OPT FOR TWO RATE CUTS IN FY25

S&P Global predicts the Reserve Bank of India (RBI) may opt for two rate cuts beginning October 2024 in the ongoing fiscal year, although several other agencies have predicted India’s rate cut will not happen before December this year.

The country’s repo rate, currently 6.5 per cent, might be cut to 6 per cent by the end of FY25, according to S&P Global.

“We expect the RBI to begin cutting rates in October at the earliest and have pencilled in two rate cuts this fiscal year,” the agency’s report said.

India is one of three nations with rates higher than the United States, the other two being the Philippines and Indonesia. India’s repo rate is constant at 6.5 per cent since February 2023. The recent US Federal Reserve rate cut by 50 basis points to 4.8 per cent has raised prospects that other central banks including the RBI will follow suit.

FOOD INFLATION TOUGH TO CONTROL

While the RBI has said food inflation is a significant problem when it comes to rate cuts, the S&P Global forecast notes India’s inflation rate for FY25 will be 4.5 per cent, which matches the central bank’s projection.