RBI Monetary Policy: In its sixth bi-monthly meeting for FY24–25, the Reserve Bank of India (RBI), projected real GDP growth at 6.7% for FY26. This is slightly higher than the revised estimate of 6.6% for FY25, which was downgraded from 7.2% in the December MPC meeting.
For Q1 FY26, the GDP growth projection was trimmed to 6.7% from 6.9%, while the Q2 FY26 forecast was revised down to 7% from 7.3%. The RBI maintained its growth estimate for Q3 and Q4 FY26 at 6.5%.
Delivering his first monetary policy statement as RBI Governor, Sanjay Malhotra stated that economic activity is expected to improve in the next fiscal year, with the manufacturing sector likely to pick up in the second quarter of FY26. He also noted that early corporate results indicate a mild recovery.
In FY24, India achieved a growth rate of 8.2%. However, due to global uncertainties, weakening urban demand, declining exports, and a slowdown in government capital expenditure, growth slowed to 5.4% in the July-September quarter of 2024—the lowest in seven quarters and well below market expectations, raising the need for policy intervention.
To boost economic growth, the Indian government, in the Union Budget 2025, has shifted its focus from capital expenditure to consumption by raising the income tax exemption limit to ₹12 lakh.
Meanwhile, S&P Global Ratings, in early November, projected India’s GDP growth at 6.7% for FY26 and 6.8% for FY27. The agency noted that high interest rates and a reduced fiscal stimulus are weighing on urban demand. While purchasing manager indices (PMIs) continue to signal expansion, other high-frequency indicators suggest a temporary slowdown in growth momentum, driven by a setback in the construction sector during the September quarter.
Global brokerage firm JP Morgan expects the country’s growth to accelerate to 6.7% in the second half (H2) of FY25, bringing the full-year 2024-25 GDP growth to 6.4%.
According to the first advance estimates released by the National Statistical Office (NSO) in early January, India’s GDP growth is projected to decline to 6.4% in FY25, the lowest in four years. This is lower than the Reserve Bank of India’s recent estimate of 6.6% for the current fiscal year.
The data also indicates that real Gross Value Added (GVA) is expected to grow by 6.4% in FY25, compared to 7.2% in FY24.
First repo cut in 5 years
As widely anticipated, the RBI, under its new governor Sanjay Malhotra, announced a 25-basis-point cut in the repo rate to 6.25% and kept the monetary stance “neutral.”
This marks the first rate cut in nearly five years, following a period of stability where the rate-setting panel kept the policy repo rate unchanged for 11 consecutive meetings after raising it by 250 basis points between May 2022 and February 2023.
In October, the Monetary Policy Committee (MPC) shifted its stance from “withdrawal of accommodation” to neutral, signaling greater flexibility in responding to changing economic conditions.
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