RBI Raises Real GDP Growth Forecast To 6.7 Pc For 2025-26

(MENAFN- IANS) Mumbai, Feb 7 (IANS) The Reserve bank of India (RBI) on Friday raised the country's real GDP growth forecast to real GDP growth for 2025-26 to 6.7 per cent, as it expects a robust rabi crop output and an expected recovery in industrial activity to support economic growth going ahead.

It also expects CPI inflation to moderate to 4.4 per cent in the fourth quarter of the current financial year and decline further to 4.2 per cent in 2025-26.

RBI Governor Sanjay Malhotra said that "looking ahead, healthy rabi prospects and an expected recovery in industrial activity should support economic growth in 2025-26".

"Among the key drivers on the demand side, household consumption is expected to remain robust aided by the tax relief in the Union Budget 2025-26," Malhotra noted.

“Fixed investment is expected to recover, supported by higher capacity utilisation levels, healthy balance sheets of financial institutions and corporates, and Government's continued emphasis on capital expenditure,” Malhotra said in his address after the monetary policy committee (MPC) meeting.

At the same time, he mentioned the risk to growth posed by global uncertainties and climate change.

“Taking all these factors into consideration, real GDP growth for 2025-26 is projected at 6.7 per cent with Q1 at 6.7 per cent; Q2 at 7.0 per cent; and Q3 and Q4 at 6.5 per cent each. The risks are evenly balanced,” said the RBI Governor.

The RBI had in December revised its GDP growth forecast to 6.6 per cent from 7.2 per cent earlier.

He pointed out that the global economy is growing below the historical average even though high frequency indicators suggest resilience amidst continued expansion in world trade. The world economic landscape remains challenging with slower pace of disinflation, lingering geopolitical tensions and policy uncertainties, he added.

Malhotra also said that the strong US dollar continues to strain emerging market currencies and enhance volatility in financial markets. In this context he mentioned that the RBI was keeping a close watch on the depreciation of the rupee and taking all steps to stabilised the Indian currency.

“On the domestic front, as per the First Advance Estimates, real gross domestic product (GDP) is estimated to grow at 6.4 per cent (y-o-y) in 2024-25 supported by a recovery in private consumption. On the supply side, growth is supported by the services sector and a recovery in agriculture sector, while tepid industrial growth is a drag," he said.

Resilient services exports will continue to support growth. However, headwinds from geo-political tensions, protectionist trade policies, volatility in international commodity prices and financial market uncertainties, continue to pose downside risks to the outlook, he added.

The RBI Governor also said that headline inflation softened sequentially in November-December 2024 from its recent peak of 6.2 per cent in October. The moderation in food inflation, as vegetable price inflation came off from its October high, drove the decline in headline inflation. Core inflation remained subdued across goods and services components and the fuel group continued to be in deflation.

Going ahead, food inflation pressures, absent any supply side shock, should see a significant softening due to good kharif production, winter-easing in vegetable prices and favourable rabi crop prospects. Core inflation is expected to rise but remain moderate.

However, continued uncertainty in global financial markets coupled with volatility in energy prices and adverse weather events presents upside risks to the inflation trajectory, he added.

The RBI Governor said taking all these factors into consideration, CPI inflation for 2024-25 is projected at 4.8 per cent with Q4 at 4.4 per cent. Assuming a normal monsoon next year, CPI inflation for 2025-26 is projected at 4.2 per cent with Q1 at 4.5 per cent; Q2 at 4.0 per cent; Q3 at 3.8 per cent; and Q4 at 4.2 per cent). The risks are evenly balanced.

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