S&P retains India's growth forecast at 6.8%, expects interest rate cut in October

The Indian economy grew 8.2 per cent in the previous fiscal. S&P said the government will continue to make public expenditure for fiscal consolidation and infrastructure improvements, according to the Union Budget presented in July. The budget has set a capital expenditure of Rs 11.11 lakh crore in the current fiscal year ending March 2025.

S&P said the RBI (Reserve Bank of India) considers food inflation an obstacle to rate cuts. It believes that unless there is a permanent and meaningful decline in the rate of increase in food prices, it will be difficult to maintain headline inflation at 4 per cent.

S&P said, "Our outlook remains unchanged: we expect the RBI to start cutting rates in October at the earliest and plan to cut rates twice this fiscal year (the year ending March 2025)."

S&P expects inflation to average 4.5% in the current fiscal year. The RBI's interest rate-setting monetary policy committee is scheduled to meet from October 7-9. To keep inflation under control, the central bank has held the benchmark interest rate steady at 6.5% since February 2023.

The government has directed the RBI to keep inflation at 4% with a margin of +/-2%. Following a 50-basis-point cut in the US Federal Reserve's benchmark interest rate, the RBI is expected to cut interest rates by 25 basis points in its monetary policy review next month.