Goldman Sachs raises India’s GDP growth forecast to 6.7% for 2024; expects RBI repo rate cut in December quarter

Goldman Sachs has raised its GDP growth forecast on account of the bumper dividend by the Reserve Bank of India (RBI) and has also pushed back its expectations of interest rate cut by the central bank.

Analysts at Goldman Sachs have revised upwards India’s GDP forecast by 10 basis points (bps) to 6.7% for 2024 as they expect sustained growth momentum with extra fiscal space on the back of massive dividend transfer by the RBI.

On domestic growth, high frequency indicators remain strong, with our proprietary consumption index tracking a recovery in Q1 (+7.8% YoY) underpinned by a nascent recovery in rural consumption and a sustained momentum in urban consumption indicators. 

Also Read: India's economy likely slowed to an annual 6.7% in January-March, its weakest pace in a year, finds report

"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,” Goldman Sachs analysts Santanu Sengupta, Arjun Varma and Andrew Tilton said in a note.

India’s growth momentum remains strong and they expect the core inflation will bottom out in April-June 2024 and be around 4.0% - 4.5% in H2CY24.

Meanwhile, the Monetary Policy Committee (MPC) members from the RBI have sounded cautious on sticky food inflation owing to supply side disruptions due to the ongoing hot weather conditions in many parts of India. 

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“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 said.

Taking into account these developments, Goldman Sachs has pushed its RBI rate cut call back by one quarter to October-December 2024 quarter as against July- September quarter earlier, with the first cut most likely in the December 2024 meeting. 

“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.

Also Read: RBI dividend boost to help in improving budget math

The timing of the first rate cut by the RBI remains a difficult question as domestic growth remains strong, which, along with a sticky trajectory for food inflation has meant that some RBI MPC members may be reluctant to pivot towards monetary policy easing, they added.

Further, there is some uncertainty on the timing of the US Federal Reserve’s rate easing cycle as it sees rate cuts from the Fed as optional, which lessens the urgency to commence the easing cycle.

Goldman Sachs pushed back its forecast for the Fed’s first rate cut by one meeting to September from July previously but still expects two rate cuts in CY 2024, with the second cut in December.

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