S&P Global raises India’s GDP forecast to 6.4% for FY24

S&P Global Ratings raised its outlook on India's Gross Domestic Product (GDP) growth for the current financial year, demonstrating confidence in the country's economic growth. The revised projection now stands at 6.4 per cent, up from the previous estimate of 6 per cent, highlighting the resilience of domestic momentum despite challenges such as high food inflation and sluggish exports.

However, the optimism is tempered for the financial year 2025, with S&P Global lowering the GDP growth forecast to 6.4 per cent from the earlier target of 6.9 per cent. The rationale behind this adjustment includes expectations of a slowdown in the second half, influenced by factors such as subdued global growth, a higher base, and the delayed impact of interest rate hikes by the Reserve Bank of India.

S&P Global notes that the interest rate cycle in India is likely to take time to shift, given that headline inflation remains above the RBI's target of 4 per cent. The agency acknowledges a transitory spike in food inflation in the July-September quarter but observes minimal impact on the underlying inflation dynamics.

Contrary to this perspective, Morgan Stanley suggested last week that India could potentially be the first among Asian economies to implement interest rate cuts by June next year.

S&P Global anticipates a 100 basis point reduction in interest rates in India by March 2024. Meanwhile, for the United States, the ratings agency foresees a gradual decline in inflation toward the US Federal Reserve's target of 2 per cent. Despite this, it expects another rate hike in the December meeting, with the first cut projected only in mid-2024.

The note from S&P Global stresses on the impact of higher US interest rates on Asia-Pacific markets and currencies is likely to persist into 2024, particularly if the US economy remains resilient, potentially necessitating higher rates for an extended period.