iNDICA NEWS BUREAU-
On Friday, February 7, the Reserve Bank of India (RBI) projected real GDP growth of 6.4% for FY25, anticipating that economic activity will pick up in the second half of the year, driven by improvements in agriculture and manufacturing.
RBI Governor Sanjay Malhotra, announcing the results of the Monetary Policy Committee (MPC) meeting, also forecasted GDP growth for FY26 at 6.7%. The quarterly breakdown for FY26 is as follows: Q1 at 6.7%, Q2 at 7.0%, Q3 at 6.5%, and Q4 at 6.5%.
On inflation, the central bank expects the Consumer Price Index (CPI) inflation to ease to 4.8% in FY25, with Q4 FY25 inflation projected at 4.4%. For FY26, the inflation forecast is 4.2%, with quarterly projections of 4.5% in Q1, 4.0% in Q2, 3.8% in Q3, and 4.2% in Q4.
Governor Malhotra highlighted that inflation has declined, supported by favorable food price outlooks and the continued transmission of past monetary policy actions. This trend is expected to persist, gradually aligning inflation with the target in FY26.
Food inflation pressures are expected to ease significantly due to a favorable rabi crop, contributing to a stable inflation outlook.
Despite global economic uncertainties, India continues to show resilience. However, Malhotra acknowledged that external pressures could still impact the economy. The Purchasing Managers’ Index (PMI) for manufacturing reflects continued resilience, while rural demand is rising, even as urban demand remains subdued.
Key factors supporting growth include tax relief measures in the Union Budget, improved agricultural output, strong business sentiment, and continued government policy support.
Additionally, the RBI plans to enhance its economic forecasting capabilities using Artificial Intelligence (AI) and will maintain its flexible inflation targeting framework to support macroeconomic stability.
Monetary Policy Statement by Shri Sanjay Malhotra, RBI Governor- February 07, 2025, 10 am https://t.co/mkTluoMAZX
— ReserveBankOfIndia (@RBI) February 7, 2025
India’s foreign exchange reserves remain strong, standing at over USD 630 billion as of January 31, 2025, providing an import cover of more than 10 months and ensuring strong external stability. The RBI also expects the current account deficit to remain within sustainable levels, further contributing to macroeconomic stability.
The recent 25 basis point (bps) rate cut—from 6.5% to 6.25%—marks the first reduction since May 2020, following a prolonged tightening cycle during which the RBI raised the repo rate from 4% to 6.5% between May 2022 and May 2023 to combat inflation. The reduction signals a shift towards supporting economic growth while maintaining price stability.
With inflation expected to remain within the RBI’s 4% target range and economic activity set to improve, the central bank’s move is expected to provide relief to borrowers and stimulate consumption and investment in the months ahead. The stance remains neutral, with Governor Malhotra emphasizing that inflation has moderated and is expected to further align with the target in FY26.
(Photo courtesy: Screengrab from X)
