RBI revises FY25 GDP forecast to 6.6% from 7.2%, says growth may gain momentum from now on

RBI Governor Shaktikanta Das announced on Friday that the central bank has decided to lower its GDP forecast for the current financial year. The development comes after data released last month showed the country's GDP growth falling to 5.4 per cent in the July-September period—the lowest reading in seven quarters. The MPC has taken note of the recent slowdown in the growth momentum, which translates into a downward revision in the growth forecast for the current year, the RBI Governor said.

The central bank now expects the economy to finish the financial year with overall GDP growth of 6.6 per cent, with 6.8 per cent in the fiscal third quarter followed by 7.4 per cent in the final quarter. 

For the next financial year, which begins on April 1, 2025, the RBI GDP growth to be at 6.9 per cent in the first quarter (April-June) and 7.3 per cent in the following three months (July-September). 

Das, however, mentioned that high frequency indicators appear to be suggesting that domestic economic activity has bottomed out in the September quarter.

The RBI chief also emphasised that going into the second half of the current financial year and the next year, the MPC has "assessed the growth outlook to be resilient but warranting close monitoring".

Expressing confidence that GDP growth may gain momentum from now on, the RBI Governor said the MPC remains committed to restoring the inflation-growth balance in the economy. "High inflation reduces the disposable income in the hands of consumers and dents private consumption, which negatively impacts the real Gross Domestic Product (GDP) growth. The increasing incidence of adverse weather events, heightened geopolitical uncertainties and financial market volatility pose upside risks to inflation," said Das. 

He also said that the panel that "only with durable price stability can strong foundations be secured for high growth". Read Shaktikanta Das's December 6 speech

Meanwhile, the MPC decided to leave the repo rate--the key interest rate at which the RBI lends short-term funds to commercial banks--at the existing level of 6.5 per cent while continuing with its 'neutral' policy stance.

The RBI also cut the cash reserve ratio—a key ratio that determines the proportion of deposits that commercial banks have to keep parked in central bank reserves—by 50 basis points (bps) to 4.0 per cent.