Fitch raises FY25 growth view, sees only one rate cut

Fitch Ratings on Tuesday raised its GDP growth forecast for India to 7.2% for 2024-25 from 7% estimated earlier, citing higher consumer confidence despite an anticipated slowdown in new investments, but has pared its interest rate cut hopes from the Reserve Bank of India to just one round of 25 basis points (bps) from two such cuts anticipated earlier. One bp equals 0.01%.

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Noting that India’s rapid growth, reflected in a faster-than-expected 8.2% uptick in 2023-24, is underpinned by a fast expansion in investment, Fitch added a caveat to say that the economy’s Gross Value-Added (GVA) at basic prices “is currently a better guide to underlying momentum and has been growing at just over 7%”.

Fitch reckoned that fixed Investments will rise 7.2% this year, slowing from a 9% growth in 2023-24, before rebounding to a 7.8% uptick in 2025-26. GDP growth is expected to moderate to 6.5% next year and 6.2% in 2026-27, with consumer spending and investment remaining the key growth drivers.  

“Signs of the coming monsoon season being more normal should support growth and make inflation less volatile, though a recent heatwave poses a risk. We expect growth in later years to slow and approach our medium-term trend estimate,” it said.

Stating that above average rainfall during June to September should limit the inflationary risks from food price spikes, the rating firm projected retail inflation to average 4.5% this year, in line with the RBI’s estimates, before dropping to 4.3% and 4.2% over the next two years.

The dynamics of household consumption

“At its latest meeting, the RBI maintained the policy rate at 6.5% and confirmed its hawkish stance of “withdrawal of monetary accommodation” and the need to bring down inflation towards target. We still expect the RBI to cut its policy rate this year, but only once, to 6.25%. We then expect 25bp of cuts in both 2025 and 2026,” the firm said. In March, it had penned in 50 basis points (bps) of rate cuts this year.

In its updated Global Economic Outlook, the rating major has raised its global growth projections for this year to 2.6% from 2.4% estimated in March, noting that though growth is slowing from the 2.9% rise recorded in 2023, the deceleration is not as sharp as it previously expected.

For 2025 and 2026, it expects the world economy to expand 2.4%, and stressed that these forecasts “paint a picture of a much more stable world economy in the middle of the decade compared to the volatility in 2020-2023”.