(MENAFN- IANS) Mumbai, Oct 19 (IANS) The RBI is likely to go in for another policy rate cut before the end of the year, which, along with fiscal consolidation and domestic regulatory easing, would lead to a gradual recovery in credit demand, according to a Goldman Sachs report.

"We expect an additional policy rate cut before year-end, and the recent GST simplification signals that peak fiscal consolidation is behind us. We expect this, along with domestic regulatory easing, to foster a gradual recovery in credit demand," the report said.

The report observes that the recent measures announced by the RBI should ease supply-side credit conditions; however, the extent of incremental lending will depend on the demand situation in the broader economy.

External headwinds continue to weigh on India's outlook, including tighter US immigration costs for H-1B visas that affect Indian IT services, in addition to elevated US tariffs on Indian goods and "these factors could temper credit demand alongside broader macro uncertainty", the report states.

India's inflation rate based on the Consumer Price Index (CPI) declined to an over 8-year low of 1.54 per cent in September this year. This gives the RBI more space to focus on reducing the policy rate and injecting more liquidity into the economy to promote growth.

The RBI has raised its projection of India's GDP growth rate to 6.8 per cent for 2025-26 from 6.5 per cent earlier, as the implementation of several growth-inducing structural reforms, including streamlining of GST, is expected to offset some of the adverse effects of the external headwinds, Reserve Bank Governor Sanjay Malhotra said earlier this month.

He pointed out that India's GDP recorded a robust growth of 7.8 per cent in Q1:2025-26, driven by strong private consumption and fixed investment. On the supply side, growth in gross value added (GVA) at 7.6 per cent was led by a revival in manufacturing and steady expansion in services. Available high-frequency indicators suggest that economic activity continues to remain resilient. Rural demand remains strong, riding on a good monsoon and robust agricultural activity, while urban demand is showing a gradual revival, the RBI Governor further stated.

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