India likely to drive global growth, benign home inflation strengthens RBI's rate cut hopes
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India is poised to consolidate its role as a key driver of global growth amid disruptions due to global trade realignments, while domestic inflation is set for a durable alignment with the central bank target, the Reserve Bank of India said in its state of economy report.The inflation outlook by central bank researchers reinforces the expectation of at least two more policy rate cuts this year, in addition to the 50 basis points repo rate reduction since February."Inflation pressure has eased significantly and is poised for a durable alignment with the target in 2025-26. The prospects of bumper rabi harvest and the outlook of an above-normal monsoon would further strengthen rural consumption and is also likely to keep food inflation in check," the RBI report said.CPI inflation for the financial year 2025-26 is projected at 4 per cent, with Q1 at 3.6 per cent, Q2 at 3.9 per cent, Q3 at 3.8 per cent; and Q4 at 4.4 per cent.On the prospect of India's economy, RBI researchers said: "Notwithstanding the daunting challenges in the horizon,India stands well-positioned to navigate the ongoing global headwinds with confidence, ready to harness emerging opportunities and consolidate its role as a key driver of global growth."The state of report was penned by the central bank researchers while they acknowledged the comments and guidance given by new deputy governor Poonam Gupta. RBI maintains that the views expressed are that of the authors.According to projections by the International Monetary Fund in April, India is projected to remain the fastest growing major economy in 2025 and is likely to surpass Japan this year to become the world's fourth largest economy."In the midst of global trade realignments and industrial policy shifts, India is increasingly positioned to function as a 'connector country' that can become a key intermediary in sectors such as technology, digital services and pharmaceuticals," they observed.The authors opined that the Indian economy gets strength from its monetary, financial and political stability as well as policy consistency and congenial business environment. Strong macroeconomic fundamentals along with a transparent, rule-based and forward-looking policy ecosystem ring-fenced the economy.Meanwhile, banks' credit growth moderated to 10.9 per cent as on May 2, 2025 against 15.9 per cent a year ago due to weaker momentum and unfavourable base effect.
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