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After the Reserve Bank of India projected more than 7 per cent of GDP growth for the entire financial year 2024-25, a latest report by State Bank of India noted that histrorically a rate cut with such a high growth has rarely, if ever, occurred in India or globally.
The report also noted that it raises an interesting question as to whether RBI is preparing the grounds for an ensuing rate cut harmonizing with current momentum in growth. "Perhaps a 7 per cent growth with a rate cut has never happened in India's history or the world history" said the SBI report. The report raises the intriguing possibility that the RBI might be laying the groundwork for a rate cut, despite the strong momentum in economic growth. It points out that such a move would be unprecedented, apart from a brief period in 2016 when a new Monetary Policy Committee (MPC) had taken over. "This raises an interesting question as to whether RBI is preparing the grounds for an ensuing rate cut harmonizing with current momentum in growth" the report said. The scenario is particularly noteworthy because, in most countries, including India, rate cuts typically occur when economic growth is slowing down, not when it is accelerating. The SBI analysis highlighted that, barring the case of the Philippines, countries that have implemented rate cuts generally did so when their GDP growth was lower than the average of the preceding four quarters. In contrast, India's projected growth remains robust, making the possibility of a rate cut all the more unusual. The report suggested that the RBI may be strategically offering markets ample time to prepare for an eventual shift in monetary policy. With foresight, the central bank appears to be signaling that it is keeping a close watch on both growth and inflation dynamics, possibly hinting at future policy adjustments. "With the fortitude of foresight, RBI has clearly offered sufficient time to markets to prepare for the eventual pivot" said the report. The Reserve Bank of India (RBI) has projected India's real GDP growth for FY25 at 7.2 per cent, post Monetary Policy Committee (MPC) meeting on Wednesday. Das said, "Real GDP growth for 2024-25 is projected at 7.2 per cent. With Q2 at 7 per cent, Q3 at 7.4 per cent and Q4 7.4 per cent. Real GDP growth for Q1 of next financial year that is 2025-26 is projected at 7.3 per cent and the risks are evenly balanced." According to RBI Governor Shaktikanta Das, growth for the fiscal year will be supported by robust quarterly performances. (ANI)
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