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Fitch Ratings predicts that India will cut interest rates again and inflation will further decrease.

TraderKnows
TraderKnows
06-18

Fitch Ratings published their quarterly Global Economic Outlook report on Tuesday, predicting that the Indian economy will continue to grow.

India is expected to grow by 7.2% in this fiscal year, higher than previously anticipated. In its quarterly "Global Economic Outlook" (GEO) report released on Tuesday, Fitch Ratings noted that the Reserve Bank of India opted for a modest interest rate cut of only 0.25 percentage points during this period.

The rating agency also revised its global growth forecast for 2024 from 2.4% to 2.6%, mainly due to improved recovery prospects in Europe, a rebound in China’s export sector, and strengthened domestic demand in emerging markets excluding China.

“We still expect the Reserve Bank of India (RBI) to cut rates this year, but only once, bringing it down to 6.25%. In our March GEO report, we forecasted a 50 basis point rate cut this year. We then anticipate further rate cuts of 25 basis points each in 2025 and 2026," Fitch wrote.

India’s growth forecast has been revised upward by 0.2 percentage points from the March projection.

Regarding India, Fitch said, "Investment will continue to grow, but at a slower pace than in recent quarters, while consumer spending will recover as consumer confidence rises."

However, Fitch expects growth to slow in the coming years and approach its mid-term trend estimates.

“We forecast real GDP growth for the fiscal year 2025/26 to be 6.5% (in line with the March prediction), and 6.2% for 2026/27, driven mainly by consumer spending and investment,” they wrote.

Fitch expects the overall inflation rate in South Asian countries to continue to decline, reaching 4.5% by the end of the year, and averaging 4.3% in 2025 and 2026, slightly above the mid-point of the Reserve Bank of India's target range of 2% to 6%.

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Interest rate cut

A rate cut refers to the central bank adjusting the interest rate level so that it is lower than before, as a form of monetary policy. It is a means by which the central bank affects the supply and demand relationship in the money market, money creation, and the level of interest rates by changing the level of interest rates. Rate cuts are usually used to counter inflation, stimulate economic growth, or alleviate economic downturn pressures.

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