Full-year growth for FY25 seen at 6.3 percent, while FY26 may see 'goldilocks period' to cut rates, says SBI Research

The growth forecast has come at a time of high trade-related uncertainty and fears of a US recession, and the FY25 projection by SBI Research is higher than the IMF's projection of 6.2 percent GDP.

India's GDP for the full year FY25, due to be released next week, is expected to come in at 6.3 percent based on advanced estimates, marginally lower than the RBI's projection yet staying resilient in times of global growth uncertainty, an SBI Research report said, with the fourth quarter reading seen between 6.4-6.5 percent.

The FY25 projection is in-line with the Finance Ministry's forecast of 6.5 percent growth for FY25.

India's provisional growth estimates for the fourth quarter as well as for the full year 2024-25 is due to be released on May 30.

SBI Research said in a note dated May 5 that the worst-case case GDP projection for the fiscal year gone by stands at 6 percent, with FY26 promising a 'goldilocks period'. "Nominal GDP growth is expected to be in the range of 9-9.5% for FY26, signifying a Goldilocks period to slash the policy rates given the low growth and low inflation," SBI Research said.

Given the multi-year low inflation seen in March and benign expectations going forward, SBI Research said it expect rate cuts of 75 basis points during the June and August MPC review, and another 50 bps cut in H2FY26, cumulatively totalling up to 125 bps going forward, with 25 bps rate cut having already been initiated in February 2025. "However, we feel, jumbo cuts of 50 bps, could be more effective than secular 25 bps tranches spread over the horizon," SBI Research added.

The growth forecast by SBI Research has come at a time of high trade-related uncertainty and fears of a US recession, and the FY25 projection by SBI Research is higher than the IMF's projection of 6.2 percent GDP. The IMF had cited strong private consumption to power India's economic ambitions in FY25 and FY26, at a time when the global growth looks set to slow down 2.8 percent for 2025. The note added that external risks are mounting, which makes the case for a cautious optimism in the shorter term.

SBI Research also pointed at factors of concerns like the drop in factory output, weak margin growth of India Inc, and persistently weak pace of capex in some states.

The projection by the SBI Research note is based on 36 high-frequency indicators.

The note added that it expects the USD/INR to stabilize between Rs 85-87 per dollar for 2025, as domestic impact of tariffs on dollar will be visible in 2025, thus supporting the rupee. "Further, DXY is expected to fall as US domestic economy will adjust to tariff impact," said SBI Research.