India’s GDP forecast
The rating agency Fitch increased its previous estimate of India’s growth in FY25 from 6.5% to 7% on Thursday. The rating agency also projects a 4% decline in the nation’s CPI by the end of 2024 and anticipates the RBI to pursue a 50 basis point rate drop from July to September.
It stated that real GDP increased significantly more than anticipated in the December outlook report, indicating that economic growth has continued to surpass its quarterly projections.
Fitch revised its projection and stated that, with the exception of China, the outlook for EM has improved, especially in India. It now projects growth of 7.8% for the fiscal year that ends in March 2024 and 7% for the fiscal year that ends in March 2024–2025.
“Our forecasts imply that growth in the short term will outpace the economy’s estimated potential, and that the pace of growth of activity will then moderate towards trend in FY25, with real GDP rising by 6.5 per cent,” Fitch stated.
In February, retail inflation in India remained stable at 5.1%, but core inflation measures were declining steadily.
Forecast for Monetary Policy
Updated Interest Rate Cut forecast: Fitch has lowered its prior forecast of 0.75% to 0.5%, indicating that the Reserve Bank of India will lower interest rates by 0.5% in the second half of the year. This modification takes into account the improved growth forecast.
RBI’s Position: The RBI is still dedicated to reaching a sustainable 4% inflation objective and has kept the repo rate at 6.50% for six straight meetings.
Motives behind the Forecast Upgrade
Robust Domestic Demand: According to Fitch, the primary engine of development will be domestic demand, specifically investments.
High Confidence Levels: Businesses and consumers continue to have a high degree of confidence, which further supports growth.
Outlook for Short-Term Growth: In the near term, growth is anticipated to be faster than usual, but it may slow down to a more sustainable pace in FY25.
