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The Reserve Bank of India has revised its GDP growth forecast for the current fiscal year down to 6.6%, a decrease from the previous estimate of 7.2%. Growth for Q2 FY25 has slowed to 5.4%, the lowest in two years, while projections for Q3 FY25 and Q4 FY25 have also been adjusted downward. For Q1 FY26, the GDP projection is now set at 6.9%.
India's central bank has maintained the benchmark interest rate at 6.50% while revising its GDP growth forecast for fiscal year 2025 down to 6.6% from 7.2%. Rising inflation, which hit a 14-month high of 6.21%, and a slower-than-expected economic growth of 5.4% in the July to September period have complicated the RBI's efforts to balance growth and inflation. Despite calls for lower borrowing costs from government officials, the RBI chief has ruled out immediate rate cuts, citing risks to the economy and currency stability.
Foreign Institutional Investors (FIIs) have significantly increased their buying activity, purchasing over Rs 23,500 crore in just four sessions, leading to a rally in local equities. The Sensex and Nifty indices have risen for five consecutive sessions, gaining over three percent.This renewed interest is attributed to attractive stock valuations following recent corrections, alongside expectations that India's inflation has peaked and the Reserve Bank of India may soon lower interest rates. If this occurs, economic growth could accelerate over the next 6–8 quarters.
The Reserve Bank of India is expected to ease monetary conditions by reducing banks' cash reserve ratios, responding to a slowdown in economic growth that has reached a seven-quarter low. However, persistent inflationary pressures may deter the central bank from cutting interest rates at this time.
RBI Governor Shaktikanta Das is expected to maintain the policy rate during the upcoming MPC meeting on December 6, marking the 11th consecutive hold amid rising inflation and a slowdown in economic growth, which fell to 5.4% YoY in 2QFY25. The decision follows a poll of 17 economists and financial experts indicating a cautious approach due to these economic challenges.
The Reserve Bank of India (RBI) has recently engaged in the non-deliverable forward (NDF) market to manage currency fluctuations and stabilize the rupee, marking a shift from its traditional focus on the local over-the-counter (OTC) spot market. RBI governor Shaktikanta Das confirmed this strategic intervention, highlighting changes in their approach to mitigate exchange rate volatility.
Indian equity markets are anticipating a liquidity boost from the Reserve Bank of India's monetary policy announcement on December 5. While the Sensex and Nifty rose 1 percent recently, most economists expect the repo rate to remain unchanged at 6.5 percent due to high inflation, though some predict a potential 50 basis point cut in the cash reserve ratio, which could inject Rs 1-1.25 lakh crore into the banking system. Recent GDP growth data showing a slowdown to 5.4 percent has intensified calls for liquidity-enhancing measures.
Nomura maintains its prediction that the Reserve Bank of India will cut interest rates by 25 basis points, despite concerns over rupee weakness and rising inflation. While retail inflation has exceeded the RBI's tolerance limit, Nomura highlights that price increases are concentrated in specific items, with overall inflation remaining subdued.
Nomura maintains its prediction that the Reserve Bank of India will cut interest rates by 25 basis points, despite rising inflation and a weakening rupee. The investment bank argues that concerns over economic growth outweigh inflation worries, noting that high prices are limited to specific items like food, while broader inflation remains subdued.
India's central bank is expected to maintain the benchmark repurchase rate at 6.5% amid concerns over a surprising economic growth slump to 5.4%. While Governor Shaktikanta Das has ruled out immediate rate cuts, pressure mounts from government officials and economists for measures to lower borrowing costs and stimulate growth. With his term ending soon, Das faces challenges in balancing inflation control and economic activity.
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