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Rating agency Crisil has said real GDP growth is likely to moderate to 6.8 per cent in FY25 from 8.2 per cent in FY24 with high interest rates and lower fiscal impulse (owing to reduction in the fiscal deficit) weighing on growth.
This growth estimate is lower than the 7.2 per cent growth estimated by the Reserve Bank’s Monetary Policy Committee earlier last month.
However, growth will become more balanced as agriculture and private consumption — last year’s laggards — are poised to rise, it said. “High rural demand and easing food inflation are expected to lift consumption,” Crisil said in a report on near-term interest rates.
Real GDP growth moderated to 6.7 per cent on-year in the first quarter this fiscal from 7.8 per cent in the previous quarter. Crisil expects CPI inflation, which was at 6.21 per cent in October, to soften to 4.6 per cent this fiscal from 5.4 per cent last fiscal.
According to the rating firm, food prices should start easing at least sequentially in the second half of this fiscal given the healthy monsoon season. “Easing food inflation and benign non-food inflation is expected to bring down headline CPI inflation,” it said.
CPI inflation accelerated to a 14-month high of 6.2 per cent in October from 5.5 per cent in the previous month. “We expect the MPC to cut repo rate by 25 bps in December. The MPC is waiting for food inflation to ease before cutting policy rates. Persistently elevated food inflation in September and October is a worry. The RBI will also monitor risks from geopolitical uncertainties and international commodity price movements. That said, the easing of food inflation by the end of this fiscal should initiate a rate cut,” Crisil said.
The MPC kept policy rates unchanged in its October meeting but changed the stance to ‘neutral’ from ‘withdrawal of accommodation’.
The Union Budget has targeted a reduction in the Centre’s fiscal deficit to 4.9 per cent of GDP this fiscal from 5.6 per cent last fiscal. “In the first six months of this fiscal, the fiscal deficit stood at 29.4 per cent of the budget target, compared with 39.3 per cent in the same period last year. Capital expenditure as a proportion of budget target has been lower relative to last fiscal,” it said.
Gross market borrowing is estimated at Rs 14 lakh crore for fiscal 2025, 9.2 per cent lower on-year. The government plans to make 47.2 per cent of the budgeted borrowings in the second half.
In November, domestic G-sec yields are likely to be influenced by factors such as FPI inflows and outflows, crude oil price movements, the rupee-dollar equation and domestic inflows into the debt market.
“The 10-year G-sec yield is expected to hinge on FPI flows, crude prices, global interest rates, the CPI inflation print, the policy decisions of the RBI’s MPC and the Federal Open Market Committee (FOMC), global cues and liquidity concerns,” Crisil said in its three-month view.
