India’s economy grew more robustly than expected in the last quarter, lowering the likelihood of an interest rate cut at this week’s central bank meeting, despite inflation being at a record low.
Economists at Barclays, Standard Chartered, and the State Bank of India anticipate that the Reserve Bank of India (RBI) will maintain its benchmark rate at 5.5% following Friday’s meeting.
GDP for the July–September quarter surged 8.2% year-on-year, surpassing even the most optimistic predictions.
“Expectations built till a few days back of a shallow rate cut of 25 basis points appear to have faded,” said Soumya Kanti Ghosh, Chief Economic Adviser to State Bank of India and a member of the Prime Minister’s economic advisory council. The choice is now “tilted in favour of pause in December,” Ghosh added.
Prior to the GDP release, RBI Governor Sanjay Malhotra had indicated that a rate cut could be considered at this week’s monetary policy meeting, pointing to record-low inflation. Retail prices fell to a historic low of 0.25% in October year-on-year, according to last month’s data.
Barclays economist Aastha Gudwani revised her growth forecast upward to 7.2% from 6.8%, citing another positive surprise in Q2 GDP and continued strong momentum in the October–December period, bolstered by festival-driven demand and recent goods-and-services tax measures, Bloomberg reports.
“We no longer expect the RBI monetary policy committee to cut the policy rate in the upcoming December 5 meeting,” she stated.
The robust economic data has led economists across the board, including Santanu Sengupta of Goldman Sachs, to significantly raise their growth forecasts for the year ending in March.
They now project expansion of roughly 7% to 7.5%, up by as much as half a percentage point; Goldman Sachs raised its estimate to 7.4% from 7% previously.
Some of the upside in both quarters may stem from statistical factors, such as an unusually favourable GDP deflator, which adjusts for inflation to calculate real growth.
Nonetheless, the strong output makes it more difficult for the RBI to justify a rate cut this week, according to economists revising their full-year projections upward.
The RBI has kept rates on hold since June, following a total reduction of 100 basis points in the policy repurchase rate since February.
Economists say that in this week’s policy meetings, the central bank could revise its growth forecast upward from 6.8% while trimming its inflation projection from 2.6%.
The “staggering GDP growth makes for a nail-biter RBI meet,” said Nomura Holdings economists Sonal Varma and Aurodeep Nandi.
They added that “urban income growth remained weak, corporate sales was lacklustre, industrial production growth low and external sector under pressure from steep US tariffs.”