• Moody's Analytics projects a 7.1% growth rate for India's economy in FY25, highlighting its resilience amidst global uncertainties.
• The agency also reduced India's inflation forecast from 5% to 4.7%, based on recent trends.
• Moody's raised the 2025 forecast for the Asia Pacific region to 4%, but warned of instability due to soft global goods demand.
• The RBI is expected to start cutting rates in October 2024, with two rate cuts anticipated for the fiscal year ending March 2025.

The global credit rating agency, Moody's Analytics, has recently projected a promising growth rate for the Indian economy in the fiscal year 2025 (FY25). Released as part of their new Asia Pacific outlook on September 24, the agency anticipates a growth rate of 7.1% for the Indian economy.

This figure underscores the country's resilience amidst global uncertainties, particularly in the wake of the global pandemic. The Indian economy has shown signs of recovery, and the projected growth rate is a testament to this resilience and the effectiveness of the economic measures implemented by the government and the Reserve Bank of India (RBI).

India's Inflation Forecast

In addition to the growth forecast, Moody's Analytics also provided an updated inflation forecast for India. The agency reduced the inflation forecast from the previously predicted 5% to 4.7%. This adjustment is based on the country's inflation trends, which remained below 4% in July and August.

The forecasts for 2025 and 2026 were kept unchanged at 4.5% and 4.1%, respectively. The year-on-year inflation rate at 3.65% for August, based on the All India Consumer Price Index (CPI), was the second lowest in the last five years. In July, the inflation rate (3.54%) had fallen below the RBI's medium-term target of 4% for the first time.

Asia Pacific Region's Growth and RBI's Stance on Rate Cuts

The report also highlighted the role of exports in driving growth in the Asia Pacific region. Moody's raised the 2025 forecast for the region to 4% from the earlier projection of 3.9%. However, the agency cautioned that this growth rests on an unstable footing due to soft global goods demand and issues with key export drivers like chips. The report also noted China's policy-led ramp-up in exports, which has sparked protectionism abroad.

On the same day, S&P Global Ratings retained India's growth forecast at 6.8% for the fiscal 2024-25. The global ratings agency stated that India's GDP growth moderated in the June quarter due to high interest rates tempering urban demand. This is in line with their projection of 6.8% for GDP for the full fiscal year 2024-2025. The rating agency also retained India's growth forecast for FY 2025-26 at 6.9%.

The report from Moody's Analytics also shed light on the RBI's stance on rate cuts. The RBI considers food inflation a hurdle for rate cuts. However, Moody's Analytics expects the RBI to start cutting rates in October 2024, at the earliest. The agency has penciled in two rate cuts for the current fiscal year ending March 2025.

The projections by Moody's Analytics and S&P Global Ratings paint a positive picture for the Indian economy in the coming years. The anticipated growth rate, coupled with controlled inflation, suggests a steady recovery from the economic impact of the pandemic.

However, the reports also underscore the need for careful monitoring of global trends and domestic inflation rates. The role of the RBI in managing interest rates will also be crucial in steering the economy towards the projected growth.