Goldman Sachs Raises India's 2024 GDP Forecast to 6.7%, Predicts RBI Rate Cuts Amid Inflation Concer

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Goldman Sachs Raises India's 2024 GDP Forecast to 6.7%, Predicts RBI Rate Cuts Amid Inflation Concer

Team Finance Saathi

28/May/2024

Key Points:

Goldman Sachs Raises GDP Forecast: India's GDP growth for 2024 is now projected at 6.7%, up by 10 basis points.
RBI Rate Cuts Expected: Interest rate cuts by the Reserve Bank of India are anticipated in the fourth quarter of 2024 or third quarter of FY25.
Inflation Trends and Monsoon Impact: Core inflation is expected to rise to 4-4.5% in late 2024, with food inflation influenced by monsoon patterns and Kharif crop sowing.

Goldman Sachs Raises India's 2024 GDP Forecast to 6.7%, Predicts RBI Rate Cuts Amid Inflation Concerns

Goldman Sachs has updated its economic outlook for India, revising the GDP growth forecast for calendar year 2024 upward by 10 basis points to 6.7%. This upward revision reflects increased optimism about India's economic resilience and growth potential in the face of global uncertainties.

Economic Growth Forecast

Goldman Sachs' revised GDP forecast is a significant indicator of confidence in India's economic trajectory. The adjustment to 6.7% growth underscores expectations of robust economic activity driven by strong domestic demand and favorable policy measures. This forecast adjustment is crucial for investors, policymakers, and market analysts who closely monitor India's economic health.

Interest Rate Projections

In addition to the GDP forecast, Goldman Sachs has projected that the Reserve Bank of India (RBI) will likely implement interest rate cuts either in the fourth quarter of 2024 or the third quarter of the ongoing fiscal year 2025 (FY25). This projection is based on anticipated changes in the inflation landscape and broader economic conditions. Lower interest rates are expected to stimulate investment and consumption, further bolstering economic growth.

Inflation Dynamics

India's core inflation has averaged 3.4% year-on-year from January to April 2024. Analysts predict that core inflation will rise to the 4-4.5% range in the latter half of 2024. This expected increase is primarily attributed to a slowdown in the escalation of manufacturing costs, which had previously driven core goods inflation. Monitoring core inflation is critical, as it reflects the underlying price stability in the economy, excluding volatile food and energy prices.

Food Inflation and Monsoon Impact

Food inflation remains a persistent concern for the Monetary Policy Committee (MPC) of the RBI. The recent hot weather conditions in various parts of India have led to supply-side disruptions, contributing to higher food prices. Analysts emphasize the importance of the monsoon season and the sowing of the summer (Kharif) crop in determining the future trajectory of food inflation. A normal or above-normal monsoon would likely ease food prices, while a below-normal monsoon could exacerbate inflationary pressures.

RBI's Cautious Approach

The RBI's cautious approach to monetary policy reflects its dual mandate of fostering economic growth while maintaining price stability. The central bank is expected to closely monitor monsoon progress and crop sowing patterns before making any decisions on rate cuts. This approach ensures that monetary policy actions are data-driven and responsive to real-time economic developments.

Broader Economic Context

India's economic outlook is shaped by several factors, including global economic conditions, domestic policy measures, and structural reforms. The upward revision of the GDP forecast by Goldman Sachs indicates confidence in the government's economic policies and the resilience of the Indian economy. However, the pace of economic recovery will also depend on external factors such as global trade dynamics, geopolitical developments, and the trajectory of the COVID-19 pandemic.

Conclusion

Goldman Sachs' revised GDP forecast and the anticipated RBI rate cuts highlight a cautiously optimistic outlook for India's economy in 2024. As core and food inflation trends remain pivotal, the monsoon season and agricultural output will play crucial roles in shaping the inflation landscape and subsequent monetary policy decisions. Stakeholders across the economic spectrum, from policymakers to investors, will be keenly watching these developments as they navigate the opportunities and challenges in India's economic journey.

By staying informed about these key economic indicators and policy forecasts, stakeholders can make better-informed decisions to capitalize on India's growth potential and mitigate risks associated with inflation and monetary policy changes.

Also Read : India's Electronics Industry Pushes for $4 Billion PLI Scheme to Boost Mobile Phone Component Manufa

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Goldman Sachs Raises India's 2024 GDP Forecast to 6.7%, Predicts RBI Rate Cuts Amid Inflation Concer

Economic Growth Forecast

Interest Rate Projections

Inflation Dynamics

Food Inflation and Monsoon Impact

RBI's Cautious Approach

Broader Economic Context

Conclusion

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