Priyanka Tiwari
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To support Indian consumption in 2025-26, the Reserve Bank of India (RBI) is predicted to lower the benchmark rates by 50-75 basis points according to Crisil India Outlook.
The report highlights the importance lowering the borrowing cap in order to mildly stimulate consumption that’s anticipated.
Almost 5 years ago in February 2023, the central bank cut the repo rate by 25bps for the first time ever in 11 policies. Following the cut, the repo rate was held at 6.50% until November 2023, where it was increased to control inflation. After the initial decrease in May 2022, the RBI started increasing the repo rate by 250 basis points until it was set to 6.50%. This is where it has remained since April 2023.
Elaborating on spending growth, the Crisil mentions an optimisitc forecast for the upcoming financial year. The predicted increase in private spending and easing monetary policies alongside government support is certainly going to make a positive change.
Despite relatively soft fiscal stimulus, growth is predicted to be better next fivcal year as the government reduces the fiscal deficit to 4.4 percent of GDP from the revised estimate of 4.8 percent, the report suggested.
It contributes to hostility towards letting the private sector invest more capital to stimulate the economy, which is not ideal, alongside the threat to exports that emerging global risks represent, the report added.
As per data released on 28th February, the Indian economy improved in the December quarter to 6.2 percent after it contracted to a seven quarter low of 5.6 percent in the July-September time period.
Increased government and private sector spending were witnessed, although capital expenditure remained low at 5.7 percent, compared to the previous quarter's 5.8 percent. Most of the increase in spending in the 3rd quarter of FY25 was due to growth in services and agriculture.
In contrast, private spending grew during this period from 5.3 percent to 6.8 percent in FY25, which has an impact on annual figures showing fixed investment declining to 6 percent from 9.8 percent.
The CRISIL report anticipates that inflation will fall further in FY26, too.
Sowing for Rabi crops is close to target and increased by 1.5% year-on-year as of February 4. This will be beneficial for food availability in fiscal 2026, the report claimed.
Core inflation is expected to be contained due to reduced commodity and crude oil pricing and will stay within the central bank’s inflation target. The report suggested that oil prices will fall, averaging $70-$75 a barrel in fiscal 2026, compared to $78-$83 a barrel in fiscal 2025.
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