Friday saw the release of the Moody's Global Macro Outlook report, which documents an enduring "sweet spot" in the India economy, characterized by robust growth and the anticipation that inflation will start to ease over the coming months.
The global ratings agency projects India's growth at 7.2 percent for the year 2024, 6.6 percent for 2025, and 6.5 percent for 2026.
Moody's said it expects India's economic momentum to remain stable during July-September, too, with a build on the 6.7 percent growth recorded during the April-June quarter.
High-frequency indicators-including expanding manufacturing and services PMIs, robust credit growth and consumer optimism-signal steady economic momentum in Q3, the Moody's Ratings report noted.
The report also noted that household consumption was expected to rise with higher expenditure during the current festive season and a rural demand revival, supported by a better agricultural scenario.
"India's (Baa3 stable) economy continues to grow robustly and has a potential for sustaining high growth rates as strong private sector financial health reinforces a virtuous economic cycle," it said.
The report further added that private investment will likely get support from rising capacity utilisation, sound business sentiment, and investments of the government in infrastructure.
Moody's, secondly, accorded more importance to solid economic fundamentals of India through robust corporate and bank balance sheets, a resilient external position, and rich foreign exchange reserves that smoothen out the economic outlook. The report has also forecasted the reduction in inflation rates in forthcoming months.
The inflation "should moderate toward the RBI's target in the coming months as food prices ease amid higher sowing and adequate foodgrain buffer stocks," the report added.
Inflation in India reached a 14-month high of 6.2 percent in October due to reasons such as rising food prices and the delayed withdrawal of the monsoon, which severely affected crops like potatoes and onions, thereby pushing the inflation figure beyond the upper limit of RBI's target range, which is at 2-6 percent. The rise has dampened expectations for a reduction in the RBI interest rate toward stimulating growth as the central bank has been clearly stating that it would actually start reducing the policy rate when the inflation drops to 4 percent levels, instead of falling below those levels.
"Although the central bank shifted its monetary policy stance to neutral while keeping the repo rate steady at 6.5 percent in October, it will most likely retain relatively tight monetary policy settings into next year given fairly healthy growth dynamics and inflation risks," the report concluded for Moody's.
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