10 october 2024 : A recent report from the State Bank of India (SBI) highlights the rarity of a rate cut accompanying such a high GDP growth forecast, noting that historically, a rate reduction alongside over 7% GDP growth has seldom, if ever, occurred in India or globally.
The report raises the possibility that the Reserve Bank of India (RBI) may be setting the stage for a rate cut, even with strong economic growth momentum. It questions whether the RBI is preparing for a policy shift that aligns with the ongoing growth trends.
“Perhaps a 7% growth with a rate cut has never happened in India’s history or globally,” the SBI report states. The analysis also underscores that, unlike typical scenarios where rate cuts follow periods of slow growth, India’s GDP projection remains robust, making such a move unusual.
The report suggests that the RBI may be offering markets time to adjust to potential changes in monetary policy. It points out that most countries, including India, usually reduce rates when GDP growth is slowing, while India’s growth remains strong.
Highlighting a precedent in 2016, the report notes that a similar situation occurred when the new Monetary Policy Committee (MPC) took charge. The RBI’s actions are seen as preparing for a possible policy pivot, with an emphasis on balancing both growth and inflation concerns.
In its latest projections, the RBI forecasts India’s GDP growth for FY25 at 7.2%, with quarterly growth estimates of 7% for Q2, 7.4% for Q3, and 7.4% for Q4. The RBI Governor has emphasized that this growth will be driven by strong quarterly performances throughout the fiscal year.