The Reserve Bank of India (RBI) on Friday projected real GDP growth for FY25 at 6.4%, expecting economic activity to pick up in the second half, driven by improvements in agriculture and manufacturing.
Announcing the Monetary Policy Committee (MPC) decision, RBI Governor Sanjay Malhotra stated that GDP growth for FY26 is estimated at 6.7%, with quarterly projections as follows:
- Q1 FY26: 6.7%
- Q2 FY26: 7.0%
- Q3 FY26: 6.5%
- Q4 FY26: 6.5%
On the inflation front, the RBI expects Consumer Price Index (CPI) inflation to ease to 4.8% in FY25, with Q4 FY25 inflation projected at 4.4%. For FY26, inflation is forecasted at 4.2%, with quarterly estimates as:
- Q1 FY26: 4.5%
- Q2 FY26: 4.0%
- Q3 FY26: 3.8%
- Q4 FY26: 4.2%
Governor Malhotra highlighted that inflation has declined, supported by a favorable outlook on food prices and the continued transmission of past monetary policy actions. “It is expected to further moderate in 2025-26, gradually aligning with the target,” he added.
Food inflation pressures are expected to soften significantly with a strong rabi crop, contributing to a stable inflation outlook.
Economic Resilience Amid Global Uncertainties
Despite global economic uncertainties, India continues to demonstrate strong economic resilience. However, Malhotra acknowledged that the economy is not completely immune to external pressures.
Key indicators of economic strength include:
- The Purchasing Managers’ Index (PMI) for manufacturing indicates continued resilience.
- Rural demand is rising, even though urban demand remains relatively subdued.
- Growth is expected to be supported by tax relief measures in the Union Budget, improved agricultural output, strong business sentiment, and continued policy support from the government.
Strengthening Economic Forecasting with AI
The RBI also announced plans to enhance its economic forecasting capabilities using Artificial Intelligence (AI). Additionally, it will continue to follow its flexible inflation targeting framework to maintain macroeconomic stability.
Foreign Exchange Reserves and Current Account Stability
India’s foreign exchange reserves remain robust, standing at over USD 630 billion as of January 31, 2025. This provides an import cover of more than 10 months, ensuring strong external stability.
The current account deficit is expected to remain within sustainable levels, ensuring a stable macroeconomic environment.
Rate Cut to Support Growth
The latest 25 basis point cut in the policy repo rate, bringing it down from 6.5% to 6.25%, marks the first rate cut since May 2020.
This move follows a prolonged tightening cycle, during which the RBI raised the repo rate from 4% to 6.5% between May 2022 and May 2023 to control inflation. The recent reduction signals a shift towards supporting economic growth while ensuring price stability.
With inflation expected to stay within the RBI’s 4% target range and economic activity set to improve, the rate cut is likely to provide relief to borrowers and boost consumption and investment in the coming months.
Governor Malhotra reaffirmed that the monetary policy stance remains neutral, emphasizing that inflation has moderated and is expected to further align with the target in FY26.