RBI MPC: Central Bank Slashes FY25 GDP Growth Forecast To 6.6% Amid Economic Slowdown

RBI MPC Meeting: India's GDP growth for the July-September quarter of 2024-25 dropped to a seven-quarter low of 5.4 per cent, falling short of the RBI’s own 7 per cent projection

RBI MPC Meeting: The Reserve Bank of India (RBI) on Friday revised its growth forecast for the current fiscal year, reducing it to 6.6 per cent from the earlier projection of 7.2 per cent. The inflation forecast was also raised to 4.8 per cent due to a slowdown in economic activity and persistently high food prices. 

India's GDP growth for the July-September quarter of 2024-25 dropped to a seven-quarter low of 5.4 per cent, falling short of the RBI’s own 7 per cent projection.

Despite this lower-than-expected growth, RBI Governor Shaktikanta Das expressed confidence that the slowdown has likely bottomed out in the second quarter of 2024-25. He highlighted that high-frequency indicators suggest a recovery driven by strong festive demand and a rebound in rural activities. He also pointed out that agricultural growth is supported by robust kharif crop production, higher reservoir levels, and favourable rabi sowing conditions. Furthermore, industrial activity is expected to normalise and recover from the lows seen in the previous quarter.

While announcing the outcome of the fifth bi-monthly Monetary Policy Committee meeting for the fiscal year, Governor Shaktikanta Das stated, "The end of the monsoon season and the expected pick-up in government capital expenditure may provide some impetus to cement and iron and steel sectors. Mining and electricity are also expected to normalise post the monsoon-related disruptions."

On the demand front, he noted that rural demand is on the rise, while urban demand is experiencing some moderation due to a high base.

"Government consumption is improving. Investment activity is also expected to improve. On the external front, merchandise exports expanded by 17.2 per cent in October 2024, while services exports continue to post upbeat growth (22.3 per cent in October)," he said.

Considering all the factors, Das said, real GDP growth for 2024-25 is now projected at 6.6 per cent, with Q3 at 6.8 per cent and Q4 at 7.2 per cent. "Real GDP growth for Q1:2025-26 is projected at 6.9 per cent and Q2 at 7.3 per cent. The risks are evenly balanced," he said.

Inflation Projections

Regarding inflation, Das noted that it spiked significantly in September and October, primarily driven by an unexpected surge in food prices.

"Core inflation, though at subdued levels, also registered a pick-up in October. The fuel group remained in deflation for the 14th consecutive month in October. In the near term, despite some softening, lingering food price pressures are likely to keep headline inflation elevated in Q3," he said.

Looking ahead, Das stressed that a strong rabi season will be crucial for easing food inflation pressures. He also highlighted the need to closely monitor the evolving trend of domestic edible oil prices, particularly after the increase in import duties and the rise in global prices. Additionally, he pointed out that manufacturing and services firms surveyed by the Reserve Bank have indicated an increase in input costs and selling prices in Q4 of 2024-25.

"Taking all these factors into consideration, CPI inflation for 2024-25 is projected at 4.8 per cent, with Q3 at 5.7 per cent and Q4 at 4.5 per cent. CPI inflation for Q1:2025-26 is projected at 4.6 per cent and Q2 at 4 per cent. The risks are evenly balanced," he said.