India’s Central Bank Adjusts Growth Forecast and Interest Rates
As the Reserve Bank of India announced a sharp cut in its growth forecast for the current year, concerns were raised about the slowing trend in one of the fastest-growing economies in the world. Despite this worrying outlook, the benchmark policy interest rate remained unchanged at 6.5 per cent due to inflationary pressures, with indications that the economy might be at a turning point.
Key Points to Note:
- Growth forecast for 2024-25 revised down to 6.6 per cent from a previous estimate of 7.2 per cent.
- GDP grew at a mere 5.4 per cent in the last quarter, marking the weakest performance in nearly two years.
- India’s economic growth has been a cornerstone of support for Prime Minister Narendra Modi’s administration, with promises of increased infrastructure investment and foreign manufacturing attraction to keep it afloat.
Experts and analysts had anticipated a potential cut in interest rates by the RBI to stimulate economic growth, given the recent slowdown. However, concerns over inflation, which breached the target range of 4-6 per cent, led to a cautious approach by the central bank. RBI Governor Shaktikanta Das emphasized the importance of reining in inflation for sustainable growth during a press conference.
Looking Ahead:
- Signs of a bottoming out in economic activity, particularly in the manufacturing sector.
- Predictions of a better second half of the year, with the Indian economy well-positioned to handle global shocks.
- Expectations of a gradual uptick in growth, though analysts remain cautious about the sustainability of the recovery.
Madhavi Arora, Chief Economist at Emkay Global, expressed skepticism about a sustained growth uptick in India and projected a lower growth rate compared to the RBI’s estimates. However, Madan Sabnavis, Chief Economist at Bank of Baroda, remains optimistic about a recovery in the manufacturing sector, forecasting growth rates between 6.6 to 6.8 per cent for the financial year.
In conclusion, the RBI’s decision to maintain interest rates despite a downward revision in growth forecasts underscores the delicate balance between stimulating economic activity and controlling inflation. The narrative of India’s economic trajectory remains nuanced, with cautious optimism prevailing among experts. It is crucial for policymakers to navigate these challenges to steer the economy towards a sustainable and robust growth path.
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