Last week, the RBI maintained benchmark interest rates at 6.5 per cent to control inflation but cut the cash reserve ratio (CRR) by 50 basis points to inject liquidity into the system. India’s economy had grown at a rate of 8.2 percent in 2023-24. S&P says that in comparison, the 5.4 percent GDP growth of the September quarter was much weaker than expected.
Indian consumers have been waiting for a cut in interest rates for a long time. RBI has kept interest rates stable at 6.5 percent since February 2023. The government has appointed Sanjay Malhotra as the new RBI governor. This has increased the possibility of a cut in the repo rate in the MPC of February 2025.
S&P Global Ratings also believes that RBI may give ‘modest relaxation’ in monetary policy. According to S&P, the Indian economy is set for “strong growth” in 2025 and inflation pressure is expected to decrease. This will lead to RBI cutting the repo rate. S&P has maintained India’s growth forecast at 6.8 percent for the current financial year. At the same time, 6.9 percent growth is estimated in the financial year 2025-26.
Vishrut Rana, economist at S&P Global Ratings, said, “The Indian economy is poised for strong growth in 2025, driven by robust urban consumption, stable services sector growth and ongoing investment in infrastructure. We expect the central bank to ease monetary policy modestly during 2025 as inflation pressures ease.”
September quarter GDP growth disappoints
Last week, the RBI maintained benchmark interest rates at 6.5 per cent to control inflation, but cut the cash reserve ratio (CRR) by 50 basis points to inject liquidity into the system. India’s economy grew at 8.2 per cent in 2023-24. S&P says that in comparison, the 5.4 per cent GDP growth of the September quarter was much weaker than expected.
Reasons for concern for the Indian economy
The overall impact of the slowdown in fiscal spending is visible on the economy. The urban middle class has also reduced unnecessary expenditure. This has also weakened urban consumption. A glimpse of this was seen in the GDP growth figures in the September quarter. S&P says that the slowdown in manufacturing growth poses a risk to our estimate.
There are many other challenges for the economy. These include post-pandemic weakness in public sector and household balance sheets, a highly competitive global manufacturing environment, and weak growth in the agricultural sector.