RBI Expected to Cut Rates Again by Year-End: Goldman Sachs
The Reserve Bank of India is likely to implement another policy rate cut before the end of the year, according to a Goldman Sachs report. This move, combined with fiscal consolidation and regulatory easing, is expected to gradually revive credit demand in the economy.
Key Takeaways
- RBI likely to cut policy rates again before year-end
- GDP growth projection raised to 6.8% for 2025-26
- Inflation at 8-year low of 1.54% provides room for rate cuts
- Strong Q1 GDP growth of 7.8% driven by private consumption
Policy Outlook and Credit Conditions
Goldman Sachs analysts stated: “We expect an additional policy rate cut before year-end, and the recent GST simplification signals that peak fiscal consolidation is behind us. We expect this, along with domestic regulatory easing, to foster a gradual recovery in credit demand.”
The report notes that recent RBI measures should ease supply-side credit conditions, though actual lending growth will depend on broader economic demand.
External Challenges and Economic Resilience
External factors continue to pose challenges, including tighter US immigration costs for H-1B visas affecting Indian IT services and elevated US tariffs on Indian goods. These factors could temper credit demand amid broader macroeconomic uncertainty.
However, India’s economic fundamentals remain strong. The inflation rate based on Consumer Price Index declined to an 8-year low of 1.54% in September, giving the RBI more flexibility to focus on growth-oriented policies.
Growth Projections and Performance
RBI Governor Sanjay Malhotra recently announced an upgraded GDP growth projection of 6.8% for 2025-26, up from 6.5% earlier. Structural reforms including GST streamlining are expected to offset external headwinds.
India’s GDP recorded robust growth of 7.8% in Q1 2025-26, driven by strong private consumption and fixed investment. Gross value added growth of 7.6% was led by manufacturing revival and steady services expansion.
Rural demand remains strong supported by good monsoon and agricultural activity, while urban demand shows gradual revival, indicating broad-based economic recovery.
