GDP shock not a trigger

A POSSIBLE START TO RBI'S RATE-CUTTING CYCLE COULD BE SEEN IN FEBRUARY

- Indranil Pan

The sweet-spot story for India may be eroding as the recently announced GDP data shows that all might not be well for the Indian economy, both from the demand side as also from the supply side. Especially as the GDP growth has now entered a sub-6% zone, unanticipated by many, including the Reserve Bank of India (RBI). As recently as the October policy, the RBI had indicated its confidence on the growth momentum as it moved the monetary policy stance to "neutral". At the October Monetary Policy Committee (MPC) meeting, the RBI continued to risk a forecast of 7.2% for the full-year FY25, even as it saw the Q1 numbers missing its own estimates of 7.1% and registering an actual outturn of 6.7%. For the Q2FY25, the RBI estimated a growth of 7% but this has once again been missed significantly with the actual outturn of 5.4%.

To achieve the RBI's estimated 7.2% GDP growth for FY25, the H2FY25 growth should be at 8.4% and this seems to be an unlikely tall order after H1FY25 growth of 6.1%. Surely the RBI would have to accept the slip in its own estimates and bring down the growth target for the year – possibly to around 6.5%. Having accepted that growth is slowing, the question that needs an answer is, will the RBI be reactive enough to immediately launch itself into a repo rate cut?