Fitch Revises India's FY25 Real GDP Projections Upwards, Expects RBI To Cut Rates In Late 2024; Reports

Fitch Ratings, a global credit rating agency, has revised its forecast for India's economic growth, painting a rosier picture for the nation's financial future. According to a Reuters report released on March 14, Fitch raised its projection for India's real gross domestic product (GDP) growth in the fiscal year 2024-25 (FY25) to 7%, up from its earlier estimate of 6.5%. This upward revision comes on the back of strong domestic demand and sustained growth in both business and consumer confidence.

The rating agency's optimism stems from India's recent economic performance, which saw an expansion of 8.4% in the October-December quarter of FY23, driven by vigorous manufacturing and construction activities. Fitch predicts a continuation of this growth momentum, albeit at a slightly moderated pace, with a projected growth rate of 7.8% for FY24. Notably, this surpasses the Indian government's revised estimate of 7.6%, indicating a more buoyant outlook than previously anticipated.

Fitch underscores the important role of domestic demand, particularly investment, in propelling India's economic trajectory forward. The agency asserts that the short-term growth is expected to outpace the economy's potential, gradually moderating towards a trend in FY25. Furthermore, it anticipates retail inflation to steadily decrease, reaching 4% by the end of the calendar year, provided recent food price volatility subsides.

However, amidst the optimism, Fitch has tempered its expectations regarding rate cuts by the Reserve Bank of India (RBI). Previously anticipating a more aggressive stance, the agency now expects the RBI to implement interest rate cuts only in the second half of the calendar year, with a revised estimate of 50 basis points (bps), down from 75 bps forecasted in December. This adjustment reflects the stronger growth outlook and the RBI's steadfast commitment to achieving its 4% inflation target sustainably.

The RBI, under the leadership of Governor Shaktikanta Das, has maintained the repo rate unchanged at 6.50% for the last six consecutive meetings. This decision underscores the central bank's cautious approach towards balancing economic growth with price stability. Governor Das recently hinted at the possibility of growth nearing 8%, aligning closely with Fitch's projections.

Fitch's upward revision of India's economic growth forecast for FY25 reflects the nation's resilience and potential for sustained expansion. With robust domestic demand and confidence levels, coupled with prudent monetary policy measures by the RBI, India appears poised to navigate the challenges ahead while capitalizing on its growth opportunities.