S&P Global Predicts RBI's Earliest Interest Rate Cut Could Come in October

The Reserve Bank of India (RBI) is likely to cut interest rates twice this fiscal year, while the first cut could come as early as October, said a note released by global ratings agency, S&P Global Ratings. While keeping the growth estimate at 6.8% for the current fiscal year, it said in its Tuesday note that the Reserve Bank of India might initiate rate cuts in its October policy review.

Speaking broadly on the Asia-Pacific economic outlook, S&P maintained its fiscal year growth forecast in India at 6.9% for 2025-26; it added that strong performance of the Indian economy will provide space to the central bank to refocus more towards aligning inflation with the target.

Growth in GDP slowed in the quarter ended June at 7.8% y-o-y, as high interest rates continue to restrain consumption in the urban sector, S&P said. This was according to their estimate of 6.8% growth for the fiscal year 2024-25, it added. In a related development, the government through its budget presentation, which took place in July, reiterated its commitment to fiscal discipline and keeping public spending on infrastructure development.

The agency also made some comments regarding food inflation-the most important barrier toward further cuts in the rate. The comments stated that unless there is significant, longstanding price inflation in food, it will be tough to keep the headline inflation rate at 4%. S&P's forecast hasn't changed, with two interest rate cuts expected before the end of the fiscal year.

The monetary policy committee of the RBI is likely to meet between October 7 and 9. From February 2023, RBI kept its benchmark rate steady at 6.5% – a balance between keeping controls on inflation and the growth needs.

Indian GDP growth is likely to stabilize at 6.8% for this fiscal year and stay at 6.9% and then 7% for the following years – slightly softer than the FY24 high of 8.2%.

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Moody's had earlier reported that had expressed concern over the growth pace in India, with it stating normalization of growth rates may be decisive for Asia-Pacific. The agency said it would see an improvement to 7.1% for this fiscal 2024 from the previous year's fiscal 8.2% and slow further to 6.5% for the next fiscal of 2025.

The Union Budget has spoken about the importance of fiscal consolidation, and S&P highlighted the allocation of ₹11.11 lakh crore for capital expenditure for the fiscal year ending March 2025.

Moody's Analytics revised India’s growth estimate for 2024 to 7.1% from a previous estimate of 6.8%, while keeping its projection at 6.5% growth for 2025. It estimated modest acceleration to 6.6% in 2026. With India growing 7.8% in 2023, Moody's estimates the pace will slow over the next few years.