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

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

In the economic scenario of Asia Pacific, S&P Global Ratings has maintained the GDP growth forecast for the financial year 2025-26 at 6.9 percent and said that solid growth in India will allow the Reserve Bank to focus on bringing the inflation rate within its prescribed range.

S&P said, "GDP growth in India slowed in the June quarter as high interest rates hit urban demand, consistent with our 6.8 per cent GDP forecast for the full fiscal year 2024-2025."

The Indian economy grew 8.2 per cent in the previous fiscal. S&P said the government will continue to make public expenditure for fiscal consolidation and infrastructure improvements, according to the Union Budget presented in July. The budget has set a capital expenditure of Rs 11.11 lakh crore in the current fiscal year ending March 2025.

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

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

S&P expects inflation to average 4.5% in the current fiscal year. The RBI's interest rate-setting monetary policy committee is scheduled to meet from October 7-9. To keep inflation under control, the central bank has held the benchmark interest rate steady at 6.5% since February 2023.

The government has directed the RBI to keep inflation at 4% with a margin of +/-2%. Following a 50-basis-point cut in the US Federal Reserve's benchmark interest rate, the RBI is expected to cut interest rates by 25 basis points in its monetary policy review next month.