Goldman Sachs has increased its GDP growth forecast due to the substantial dividend from the Reserve Bank of India (RBI) and has also delayed its expectations for an interest rate cut by the central bank.
Analysts at Goldman Sachs have upwardly revised India's GDP forecast by 10 basis points (bps) to 6.7% for 2024, anticipating sustained growth momentum with additional fiscal space resulting from the substantial dividend transfer by the central bank.
In regard to domestic growth, high-frequency indicators continue to display strength, with the proprietary consumption index reflecting a recovery in the first quarter (+7.8% year-on-year). This recovery is supported by an emerging improvement in rural consumption and a sustained momentum in urban consumption indicators, Mint reports.
“Going forward, we expect investment growth momentum to sustain with extra fiscal space for infrastructure spending given a higher than expected dividend transfer by the RBI. As a result, we recently revised our growth forecasts for CY24 slightly higher by 10 bps to 6.7% YoY,” said Goldman Sachs analysts Santanu Sengupta, Arjun Varma and Andrew Tilton.
India's growth momentum remains robust, and the analysts anticipate that core inflation will reach its lowest point in April-June 2024, stabilising at around 4.0% - 4.5% in the second half of the 2024 calendar year.
Meanwhile, members of the Monetary Policy Committee (MPC) from the RBI have expressed caution regarding persistent food inflation, attributing it to supply-side disruptions caused by the ongoing hot weather conditions in various parts of India.
“In our view, they may want to see progress of the monsoons and sowing of the summer (Kharif) crop to assess the food inflation trajectory in 2H CY24, before pivoting towards monetary policy easing," the Goldman Sachs report states.
Considering these factors, Goldman Sachs has postponed its call for an RBI rate cut by one quarter to the October-December 2024 quarter, compared to its earlier projection for July-September. The first rate cut is now anticipated to occur most likely during the December 2024 meeting, the Mint report goes on to add.
“We continue to expect a shallow easing cycle of total 50 bps rate cuts from the RBI, with 25 bps rate cuts each in Q4 CY24 and Q1 CY25,” the analysts said.
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