India’s central bank may hold fire on rate changes as sluggish growth, inflation risks, and geopolitical uncertainties prompt a cautious economic outlook, suggests Crisil’s latest forecast.
India’s central bank may keep room open for rate changes at its next policy meeting as growth is expected to cool in the months ahead, with Crisil forecasting gross domestic product expansion of 6.6% for the current fiscal year, down from 7.7% in the previous one. The ratings firm said the economy has held up so far, but argued that higher costs, weaker export conditions and weather-related risks to agriculture are likely to weigh on momentum.
Crisil said July brought a clear improvement in financial conditions, helped by net foreign portfolio inflows of $4.2bn, the strongest since September 2024. The equity market recorded its first net inflow in five months, while the S&P BSE Sensex and NSE Nifty 50 both advanced during the month. The firm also pointed to a wider system liquidity surplus, softer money-market rates and a fall in the benchmark 10-year government bond yield as signs that financing conditions had eased.
Even so, the rupee weakened, reflecting a stronger dollar and firmer crude prices, while Crisil warned that developments in West Asia remain the main downside risk for financial markets this fiscal year. The company has separately said elevated oil prices and geopolitical uncertainty are likely to keep inflation pressures elevated, with wholesale prices rising sharply earlier this year even as consumer inflation stayed more contained.
The broader outlook remains mixed. Crisil has said domestic demand continues to underpin growth, supported by private consumption and public investment, but it has also cautioned that a below-normal monsoon, a tougher global backdrop and the risk of supply shocks could slow the economy further. That leaves the Reserve Bank of India with scope to stay flexible at its next Monetary Policy Committee meeting, balancing growth support against external risks and inflation pressures.
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