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Moody’s Ratings says inflation dangers may immediate the Reserve Bank of India to retain a comparatively tight financial coverage this yr.
Sound financial fundamentals, together with wholesome company and financial institution steadiness sheets, a stronger exterior place, and ample foreign exchange reserves bode effectively for the expansion outlook, says Moody’s.
Moody’s Ratings on Friday mentioned the Indian financial system is in a candy spot, with the combination of strong development and moderating inflation. It forecasts a 7.2 per cent GDP development for India in 2024, and mentioned the RBI may retain a comparatively tight financial coverage this yr amid inflation dangers.
In its Global Macro Outlook 2025-26, the US-based world ranking company mentioned, “… from a macroeconomic perspective, the Indian financial system is in a candy spot, with the combination of strong development and moderating inflation. We forecast 7.2 per cent development for calendar yr 2024, adopted by 6.6 per cent in 2025 and 6.5 per cent in 2026.”
It said sound economic fundamentals, including healthy corporate and bank balance sheets, a stronger external position, and ample foreign exchange reserves bode well for the growth outlook.
The rating agency said that despite the near-term uptick, retail inflation should moderate toward the Reserve Bank’s target in the coming months as food prices ease amid higher sowing and adequate food grain buffer stocks.
The retail inflation scaled to a 14-month high of 6.21, breaching the RBI’s upper tolerance limit, on a sharp jump in vegetable prices.
The agency said sporadic food price pressures continue to inject volatility in the disinflation trajectory.
“Potential risks to inflation from heightened geopolitical tensions and extreme weather events underscore the RBI’s cautious approach to policy easing. Although the central bank shifted its monetary policy stance to neutral while keeping the repo rate steady at 6.5 per cent in October, it will likely retain relatively tight monetary policy settings into next year, given the fairly healthy growth dynamics and inflation risks,” Moody’s mentioned.
The RBI’s curiosity rate-setting financial coverage committee is scheduled to fulfill subsequent month, and with inflation ruling excessive, it’s unlikely that the RBI would lower benchmark rates of interest.
Moody’s mentioned family consumption is poised to develop, fuelled by elevated spending through the ongoing festive season and a sustained pickup in rural demand.
Additionally, rising capability utilisation, upbeat enterprise sentiment and the federal government’s continued thrust on infrastructure spending ought to assist non-public funding.
India’s actual GDP expanded 6.7 per cent year-over-year within the second quarter of 2024, pushed by a revival in family consumption, sturdy funding and powerful manufacturing exercise. There are indications of a gradual financial momentum within the July-September quarter as effectively.
The world financial system, Moody’s mentioned, has proven outstanding resilience in bouncing again from provide chain disruptions through the pandemic, an vitality and meals disaster after the Russia-Ukraine warfare started, excessive inflation and consequent financial coverage tightening.
“Most G-20 economies will expertise regular development and proceed to profit from coverage easing and supportive commodity costs. However, post-election adjustments in US home and worldwide insurance policies may doubtlessly speed up world financial fragmentation, complicating ongoing stabilization,” said Madhavi Bokil, Senior Vice President at Moody’s Ratings and author of the report.
Moody’s mentioned commerce tensions and geopolitical stresses, significantly between the US and China, are major dangers to the worldwide macroeconomic outlook.
Potential long-term geoeconomic fragmentation could complicate global trade and financial connectedness.
Increasing trade protectionism, together with a push in several large economies to strengthen their domestic industries, make external demand a less reliable source of growth, Moody’s said, adding economies with robust domestic drivers of growth will experience greater resilience and stability.
