CareEdge Ratings expects the RBI to cut policy interest rate by 50-75 basis points (bps) in 2025 as food inflation moderates., even as it has projected India’s GDP growth to moderate but remain healthy at 6.5 per cent in FY25 and 6.7 per cent in FY26.

The credit rating agency has forecast the average CPI inflation at 4.8 per cent in FY25 and 4.5 per cent in FY26. It highlighted that CPI inflation excluding vegetable inflation has been below 4 per cent in the last few months WPI inflation is anticipated to average 2.5 per cent in FY25 and 3 per cent in FY26. .

The agency expects 10-year Government Security yield to trade between 6.5-6.6 per cent by the end of FY25 (against current level of 6.74 per cent) and between 6.1- 6.3 per cent by the end of FY26.

Sachin Gupta, Chief Rating Officer & ED, observed that growth in the first half of FY25 was one of cautious optimism within India’s corporate sector, where stability and resilience met global challenges head-on.

“Amid the uncertain global environment, there is a lingering hesitancy among businesses to commit to long-term investments, as the anticipated boost in private capital expenditure is yet to materialise. However, we expect to see improvement in private investment in 2025, supported by anticipated monetary policy easing.” he said.

Rajani Sinha, Chief Economist, said that contraction in public capex, prolonged monsoon and weakening urban demand impacted growth momentum in H1 (April-September) FY25.

“But we can expect the economic growth in H2 (October-March) FY25 to rebound, supported by the recovery in consumption and a pick-up in government capex. Healthy agriculture production and robust services sector performance will be supportive of a rebound in GDP,” she said.

According to the agency, CPI inflation is expected to moderate in the coming quarters. It expects food inflation to moderate, driven by a strong kharif harvest and favourable conditions for rabi sowing.

Government finances

As far as government finances are concerned, the agency opined that net revenue collection will be aligned with the budgeted target. The weak corporate tax collection will be compensated by healthy income tax collection for the year.

On the expenditure side, the agency assessed that the Centre’s capex is likely to fall short of target by Rs 1.5 lakh crore.

With lower capex, CareEdge Ratings projected the fiscal deficit for FY25 at 4.8 per cent of GDP, marginally lower than the budgeted 4.9 per cent.

It projected nominal GDP growth to be lower at 9.9 per cent as against budgeted growth of 10.5 per cent for FY25.

External front & Rupee

On the external front, CareEdge Ratings has projected merchandise exports to rise by 2.5 per cent, while, services exports are projected to record a strong growth of 13 per cent in FY25. Further, encouraging performances in remittances is expected to continue.

Overall, the agency expects India’s current account deficit (CAD) to remain manageable at 0.9 per cent of GDP in FY25. The agency believes that the manageable CAD and high forex reserves should support rupee.

However, a strong dollar and weak yuan are likely to put some weakening pressure. CareEdge expects Rupee to trade around 84 per Dollar by end of FY25 (Rupee closed at 84.7875 on Friday) and between 84-86 by end of FY26.