Economists at SBI have detected an intriguing aspect in the RBI's latest projection of 7 per cent GDP growth for the financial year 2024-25, and issued a report flagging a likely occurrence that has happened "rarely, if ever, either in India or globally".
It may be noted here that the RBI has projected India's real GDP growth for FY25 at 7.2 per cent following the recent Monetary Policy Committee (MPC) meeting. RBI Governor Shaktikanta Das said in his speech on October 9, "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 at 7.4 per cent. Real GDP growth for Q1 of the next financial year that is 2025-26 is projected at 7.3 per cent and the risks are evenly balanced."
The growth for the fiscal year is expected to be driven by robust quarterly performances.
In the light of the possibility that the RBI might be setting the stage for a rate cut despite the strong economic growth, the SBI report pointed out that historically, a rate cut during such high growth periods is an uncommon occurrence globally as well as in India.
"Perhaps a 7 per cent growth with a rate cut has never happened in India's history or the world history," the report underlined.
The SBI analysis said that usually, rate cuts are made when economic growth is slowing, not accelerating. Exceptions like the Philippines show rate cuts when GDP growth was lower than the prior four-quarter average, unlike India's current robust projections.
This report implied that the RBI could be giving markets time to adjust to a future policy shift. "With the fortitude of foresight, RBI has clearly offered sufficient time to markets to prepare for the eventual pivot," it added.
It may be noted here that the RBI has projected India's real GDP growth for FY25 at 7.2 per cent following the recent Monetary Policy Committee (MPC) meeting. RBI Governor Shaktikanta Das said in his speech on October 9, "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 at 7.4 per cent. Real GDP growth for Q1 of the next financial year that is 2025-26 is projected at 7.3 per cent and the risks are evenly balanced."
The growth for the fiscal year is expected to be driven by robust quarterly performances.
In the light of the possibility that the RBI might be setting the stage for a rate cut despite the strong economic growth, the SBI report pointed out that historically, a rate cut during such high growth periods is an uncommon occurrence globally as well as in India.
"Perhaps a 7 per cent growth with a rate cut has never happened in India's history or the world history," the report underlined.
The SBI analysis said that usually, rate cuts are made when economic growth is slowing, not accelerating. Exceptions like the Philippines show rate cuts when GDP growth was lower than the prior four-quarter average, unlike India's current robust projections.
This report implied that the RBI could be giving markets time to adjust to a future policy shift. "With the fortitude of foresight, RBI has clearly offered sufficient time to markets to prepare for the eventual pivot," it added.
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