RBI Forecasts Economic Trajectory: 7.1% FY24 GDP Growth and 6% in FY25

The Reserve Bank of India (RBI) has released projections for India’s economic performance, utilizing its Dynamic Stochastic General Equilibrium (DSGE) model. The forecast indicates a real GDP growth of 7.1% for the fiscal year 2023-24, surpassing the previous estimate of 7%, and a subsequent slowdown to 6% in the following fiscal year, 2024-25.

GDP Projections

• FY23-24: The RBI anticipates robust growth at 7.1%, reflecting positive demand-side dynamics and alleviation of supply-side constraints.
• FY24-25: The growth momentum is expected to decelerate slightly to 6%, aligning with the central bank’s strategy of withdrawing accommodation to manage inflation and bolster growth.

Inflation Outlook

• Inflation Moderation: The DSGE model predicts a moderation in retail inflation post Q3 FY24, projecting an average of 5.3% for the fiscal year. Further moderation is expected in FY25, reaching 4.8%.
• Upside Risks: While the outlook is optimistic, potential upside risks to the inflation forecast are acknowledged, necessitating a cautious approach.

Monetary Policy and Repo Rate

• Unchanged Repo Rate: The repo rate is anticipated to remain steady at 6.5% throughout most of FY25. This aligns with the RBI’s dual focus on aligning inflation with the 4% target and supporting economic growth.

Global Economic Assumptions

• Global GDP Growth: The GDP growth projections hinge on the assumption of global GDP growth at 2.6% in FY24 and 2.1% in FY25.
• Inflation Abroad: Global Consumer Price Index (CPI) inflation is estimated at 5.5% in FY24 and further moderation to 4% in FY25.
• Policy Rates: The forecasts factor in an unchanged RBI policy repo rate and a US Fed funds rate at 6.5% in FY24 and 5.5% in the subsequent financial year.

Questions Related to Exams

Q: What does the RBI project for India’s GDP growth in FY24 and FY25?

A: The RBI forecasts a robust 7.1% GDP growth for 2023-24, followed by a slight deceleration to 6% in 2024-25.

Q: What are the inflation projections according to the RBI’s DSGE model?

A: Retail inflation is expected to average 5.3% in FY24, with further moderation to 4.8% in FY25 after Q3.

Q: What is the anticipated repo rate scenario for most of FY25?

A: The RBI expects the repo rate to remain unchanged at 6.5% throughout most of the fiscal year 2024-25.

Q: What global assumptions underlie the GDP growth projections?

A: The forecasts consider a global GDP growth of 2.6% in FY24 and 2.1% in FY25, with a stable RBI repo rate and US Fed funds rate.