Economists peg FY26 growth at 6.3%, lower than RBI's forecast, but don’t expect a further rate cut

RBI

Economists are projecting GDP growth in the current financial year to be slightly lower, at 6.3 percent, than the Reserve Bank of India’s (RBI) forecast of 6.5 percent, according to a Moneycontrol poll of 10 economists carried out on Wednesday, August 6.

However, the central bank may not cut its policy rate further, unless the growth momentum slows significantly more than the current expectation, they said.

On Wednesday, the RBI retained its growth projection for FY26 at 6.5 percent, and the monetary policy committee (MPC) kept the policy repo rate unchanged at 5.5 percent.

In the post-policy press conference, RBI Governor Sanjay Malhotra said: "We don’t see a major impact of US tariffs on the Indian economy, unless there is a retaliatory tariff."

"We’re hopeful that we will have an amicable solution (to trade negotiations)," he added.

Most economists Moneycontrol spoke with  largely agree with the governor’s remarks, but say if the tariff-related negotiations between India and US are not positive, growth may be much lower than even 6.3 percent, which would prompt the RBI to cut rates further.

"If the tariff outcome becomes decisively negative between now and the October policy, the probability of a rate cut could then increase for the next policy," said Sakshi Gupta, principal economist, HDFC Bank.

"In the case where tariffs remain elevated at current levels and/or are further raised, we see a downside risk of 20-25bps (basis points) to our GDP growth forecast for the year (6.3 percent)," Gupta added.

On Tuesday, US President Donald Trump announced plans to "substantially" increase duties on Indian goods in the next 24 hours, adding to an earlier decision to raise tariffs from 10 percent to 25 percent. He has also warned of a separate penalty over India’s purchases of Russian military hardware and oil.

Dhiraj Nim, economist, ANZ Research, held to his prediction of one more rate cut, of 25 bps, in October, although with lower conviction than earlier. "I feel the RBI would be surprised by growth coming in lower than their expectation. The effect of high tariffs would be felt in H2FY26," he told Moneycontrol.

"However, the window of a cut is closing, as inflation will increase from March onwards. The 25 bps rate cut should have happened today, in fact," added Nim.

According to the RBI, retail inflation is projected to average 3.1 percent in FY26. In Q1, Q2 and Q3, the inflation is projected at 3.1 percent, 2.1 percent and 3.1 percent, respectively. But in Q4 of FY26 and Q1 of FY27, inflation based on the Consumer Price Index is seen shooting up to 4.4 percent and 4.9 percent, respectively.

Vivek Kumar, economist, QuantEco Research, said inflation receding to 3.1 percent is immaterial, as it’s being led by a decline in food prices. "The Q1FY27 figure is closer to 5 percent, so the room for monetary easing is not really there. If at all growth is lower by 20-30 bps (than 6.5 percent), only then is a 25 bps rate cut likely."

Madhavi Arora, chief economist, Emkay Global, said: "We think going ahead downside risks to growth would be increasingly evident with new global resets and could still open up space for easing in the remainder of the year, even though the governor seems to have raised the bar higher for further easing."

In the August 4 post-policy statement, Malhotra noted that in the credit market, the weighted average lending rate of scheduled commercial banks declined by 71 bps for fresh rupee loans (of which 55 bps was due to interest rate reduction) and 39 bps for outstanding rupee loans from February 2025 to June 2025.

"This will certainly help the growth in credit, as well as impact the real economy. While the rates have come down significantly faster, the impact on the real economy will start taking place. There is no reason to believe that this (reduction in rates) will not have a growth-inducing impact," Malhotra said.

As per the latest RBI data, bank credit to industry did not grow but in fact slowed to 5.5 percent in the fortnight ended June 26 compared to a 7.7 percent uptick in the year-ago period.