(Bloomberg) -- India’s central bank said the country’s slowing economy will get a boost from a revival in demand during the festivals and improving consumer confidence, but warned that geopolitical tensions in the Middle East may threaten prospects.
“Rural demand is expected to get a boost from the improved agricultural outlook,” the Reserve Bank of India said in its monthly bulletin for October, adding that private investment should gain momentum “in response to signs of pick-up in consumption demand and rising business optimism.”
The central bank expects government spending to increase, lifting the economy for the rest of the fiscal through March 2025. Though, it cautioned that rising geopolitical tensions remain a potential threat to the country’s exports and may alter the course of monetary policy.
“Increase in commodity prices, especially of crude oil and metals, raise pass-through risks for net importer countries,” the central bank said. “The future course of monetary policy the world over would, therefore have to take into account the risks to both growth and inflation from recent commodity price shocks.”
India’s economic growth has been showing signs of weakness after topping estimates in 2024, with urban consumption slowing. Several economists, including those from Goldman Sachs, predict gross domestic product growth of 6.5% for the current year, much lower than the RBI’s estimate of 7.2%.
“Some high frequency indicators have, however, shown a slackening of momentum in the second quarter of 2024-25 partly attributable to idiosyncratic factors like unusually heavy rains in August and September,” the central bank said. It expects the slowdown in the economy to be temporary.
The central bank tweaked its policy stance to neutral last week, setting the stage for an interest rate cut in the coming months. Data due Monday is expected to show inflation rebounding in September, keeping the central bank focused on aligning it with the 4% target. Governor Das has repeatedly dismissed all calls for a rate cut without bringing inflation within its target range on a durable basis.
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