India is expected to remain relatively unaffected from the global financial disruptions that might occur due to a trade war between the US and China in 2025, as per a report by Goldman Sachs.
The report stated that India’s structural growth prospects in the long run will remain strong despite ongoing global unpredictability.
However, the report highlighted that a cyclical slowdown in growth is anticipated, with the country’s GDP projected to decelerate annually, reaching 6.3 percent in 2025.
“While the cyclical growth slowdown calls for easier monetary conditions in our view, the ‘stronger dollar’ scenario will mean the RBI will likely proceed cautiously,” it said.
The slowdown is expected to result from continued fiscal consolidation and tighter credit growth due to macro-prudential measures taken by the Reserve Bank of India (RBI). Retail loan growth may also be muted, despite lower interest rates, due to this tightening.
Additionally, the report predicts that the central bank’s monetary policy will remain cautious in 2025, with expectations of interest rate cuts starting in the first quarter and a total reduction of 50 basis points by mid-year.
Given the strength of the US dollar and global trade uncertainties, the RBI is expected to adopt a cautious approach, even though there are calls for more accommodative monetary policies to stimulate growth.
While inflation is expected to meet the RBI’s target next year, the scope for rate cuts is anticipated to be limited. The RBI is likely to adopt a measured approach, maintaining monetary policy near the nominal neutral rate, which is estimated at 6 percent.
The report further suggests a 0.25 percent repo rate cut in February 2025, followed by another 25-basis-point cut in April. The RBI is also expected to sustain a liquidity surplus, which would cause overnight interbank rates to decrease to 5.75 percent, representing a 75-basis-point easing from the current 6.50 percent level.
Overall, the Goldman Sachs report predicts that India’s economy will remain resilient in the face of global trade tensions, reflecting its ability to withstand external shocks.