Economic Forecast
CareEdge Ratings sees India growth-inflation balance improving in FY26
This story was originally published at 14:17 IST on 13 December 2024
Register to read our real-time news.Informist, Friday, Dec. 13, 2024
Please click here to read all liners published on this story
--CareEdge: Expect CPI inflation to moderate in next few months
--CareEdge: See CPI inflation at 4.8% in FY25, 4.5% in FY26
--CONTEXT: CareEdge Ratings details its economic and sector outlook
--CareEdge: Expect GDP growth to pick up in H2 FY25
--CareEdge: See GDP growth at 6.5% in FY25, 6.7% in FY26
--CareEdge: Expect govt to continue with fisc consolidation in FY25, FY26
--CareEdge: See FY25 fiscal deficit at 4.8% of GDP vs 4.9% of Budget aim
--CareEdge: Govt may miss FY25 capex aim of INR 11.1 tln by INR 1.5 tln
--CareEdge: See rupee around 84/$1 by FY25 end, 86/$1 by FY26 end
--CareEdge: See 10-yr gilt yield at 6.5-6.6% end FY25, 6.1-6.3% by end FY26
--CareEdge: Expect 50-75 bps of rate cuts in 2025 starting Feb
NEW DELHI – CareEdge Ratings expects India's growth-inflation balance to improve in 2025-26 (Apr-Mar), after the recent surprise prints soured the outlook for the current financial year. The rating agency expects GDP growth to rise to 6.7% next year from its projection of 6.5% for FY25. It also sees CPI inflation moderating to 4.5% in FY26 against the current year's forecast of 4.8%.
CareEdge's growth and inflation forecasts for the current financial year are broadly similar to the Reserve Bank of India's projection. The central bank has projected GDP growth at 6.6% in FY25, while inflation is seen averaging 4.8%.
"Moderating inflation, some improvement in IT (information technology) sector hiring and urban consumption, are the reasons why we expect GDP growth to rise to 6.7% in FY26," Rajani Sinha, chief economist at CareEdge Ratings, said at the company's 'Economic and Sector Outlook' webinar on Friday.
If inflation moderates, as is expected, the RBI could shift its focus to growth from inflation. As such, the central bank's Monetary Policy Committee is expected to lower the repo rate by 50-75 basis points in 2025 starting February, Sinha said.
As per data released on Thursday, CPI inflation moderated to 5.48% in November from a 14-month high of 6.21% in October. Inflation had risen over 250 bps between August and October, but CareEdge expects it to moderate in the next few months, and fall below 5% in Jan-Mar.
On the other hand, GDP growth fell sharply to a near-two year low of 5.4% in Jul-Sept, which led to economists and the RBI sharply lowering their FY25 growth projections. CareEdge expects GDP growth to pick up in Oct-Mar.
The rating agency expects the government to continue its focus on fiscal consolidation this year and in FY26. In the current financial year, the rating agency expects the government to bring down the fiscal deficit to 4.8% of GDP, 10 bps lower than the 4.9% aim set in the Budget.
The government is likely to improve upon its fiscal deficit target mainly because of lower capital spending, Sinha said. CareEdge expects the government to miss the FY25 capital expenditure target of INR 11.11 trillion by INR 1.5 trillion.
On the markets front, the rating agency said that the Indian rupee is likely to rise to around 84 against the dollar by the end of FY25 but then fall to around 86 per dollar by the end of FY26. The rupee ended at a record closing low of 84.86 per dollar on Thursday. The 10-year gilt yield is expected to fall to 6.5-6.6% by the end of FY25 from Thursday's closing level of 6.74%, CareEdge said. By the end of FY26, the 10-year gilt yield is seen falling to 6.1-6.3%. End
Reported by Shubham Rana
Edited by Vandana Hingorani
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
Informist Media Tel +91 (11) 4220-1000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2024. All rights reserved.
To read more please subscribe
Share this Story:
