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RBI lowers its prediction for FY25 GDP growth to 6%

In real terms, India’s GDP will probably increase by 6% in FY25, the Reserve Bank of India said in its “state of economy” report, which was made public on Wednesday.

The most recent estimate, which follows the upward revision of the projected growth rate for FY24 from 6.5% to 7%, is less than the 6.5% forecast in the Monetary Policy Committee report from October. The most recent study indicates that GDP growth in FY24 would be 7.1%.

Furthermore, the research stated that favorable demand side factors and the easing of supply side limitations are at work, and that consumer price index inflation could average 5.3% in FY24 and decline to 4.8% in FY25. It is anticipated that GDP will continue to grow in spite of global challenges, as inflation continues to moderate.

The assumption used to calculate the GDP growth prediction was that global GDP growth may reach 2.6% in FY24 and 2.1% in FY25. Inflation based on the global consumer price index (CPI) is now projected to be 5.5% in FY24 and 4% in FY25. The US Fed funds rate is projected to be 5.5% in the upcoming fiscal year and 6.5% in FY24, with the RBI policy repo rate remaining steady.

According to the RBI research, “the baseline forecast suggests that the Indian economy is likely to undergo some moderation in subsequent quarters after a phase of high growth in the first half of 2023-24.”

According to the status of the economy report, lending growth decreased from 17.5% a year ago to 16.4% as of December 1 (excluding the impact of the HDFC twins merger). Bank aggregate deposits climbed by 12.2% YoY as of December 1 as compared to 9.3% a year earlier.

“Deposit growth, which had spiked following the withdrawal of Rs 2000 banknotes, has now stabilized (apart from the impact of the merger). The incremental credit-deposit ratio increased over 100% between June 2022 and May 2023, but it has since declined due to the increase in deposit mobilization, according to the statement.

However, the RBI emphasized that the credit markets are still adjusting to the RBI MPC’s 250-bps repo rate hike. The weighted average lending rate (WALR) on new rupee loans rose by 199 basis points (bps) between May 2022 and October 2023, which includes an increase of 18 bps since April 2023.

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