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Informist, Monday, Nov. 25, 2024

 

MUMBAI – S&P Global Ratings cut its forecast on India's growth in financial year 2025-26 (Apr-Mar) and FY27 by 20 basis points each, it said in a report Sunday. The rating agency estimated the real GDP growth for FY26 and FY27 at 6.7% and 6.8%, respectively.

 

S&P Global Ratings kept its growth estimate for the current financial year unchanged at 6.8%. Its FY25 growth estimates are lower than the Reserve Bank of India's forecast of 7.2%. India's GDP grew 8.2% in FY24, but only 6.7% in Apr-Jun, a five-quarter low.

 

"In India we see GDP growth easing to 6.8% this fiscal year as high interest rates and a lower fiscal impulse temper urban demand," S&P Global Ratings said in its report. "While purchasing manager indices remain convincingly in the expansion zone, other high-frequency indicators indicate some transitory softening of growth momentum due to the hit to the construction sector in the September quarter."

 

Despite this, the agency expects the RBI's Monetary Policy Committee to cut the policy repo rate only once in FY25 as high food inflation pushes up headline consumer inflation. The agency projected inflation at 4.6% for the current financial year and expects inflation for FY26 and FY27 at 4.4% and 4.6%, respectively.

 

"The RBI cannot ignore food inflation when considering rate cuts," the agency said in its report. "Food items make up nearly 46% of the inflation basket and persistently high food inflation raises inflationary expectations."

 

However, S&P Global Ratings does see a rate-cut cycle larger and longer than markets are anticipating. The one-year overnight indexed swap rate, a market indicator of rate cuts, suggests cuts of about 50 basis points in the next 12 months. By contrast, S&P Global's estimates showed India's policy repo rate at 5.50% at the end of 2025, against the current 6.50%. It also sees one 25-bps rate cut in FY26, for a terminal repo rate of 5.25% in the current cycle.

 

The projections were part of the agency's Asia-Pacific outlook for Jan-Mar. Going ahead, central banks will be cautious about rate cuts due to changes in capital flows amid shifts in expectations about US interest rates and trade policies, the report said. 

In the Asia-Pacific, S&P Global Ratings expects delayed growth due to slower global demand and US trade policy, though lower interest rates and inflation should ease spending power. Emerging markets are also expected to see strong domestic demand, aiding GDP growth, according to the report.  End

 

Reported by Christina Titus 

Edited by Rajeev Pai

 

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