Policy Rate May Drop Before Year-End, Says Goldman Sachs

Goldman Sachs expects another RBI policy rate cut before year-end, aided by GST simplification and domestic regulatory easing. While external headwinds persist, credit demand recovery and growth outlook are set to improve in FY26.

New Delhi [India], October 19 (ANI): An additional policy rate cut is expected before the end of the year, alongside recent GST simplifications, indicating that peak fiscal consolidation is behind us. These factors, combined with domestic regulatory easing, are likely to foster a gradual recovery in credit demand, said a report by Goldman Sachs.

"We expect an additional policy rate cut before year-end, and the recent GST simplification signals that peak fiscal consolidation is behind us. We expect this, along with domestic regulatory easing, to foster a gradual recovery in credit demand," the report added.

RBI Measures to Ease Credit Conditions

The report noted that the RBI's recent measures should ease supply-side credit conditions; however, the extent of incremental lending will depend on demand dynamics in the broader economy. In a unanimous decision, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept the policy repo rate unchanged at 5.5 per cent in its policy announcement after the last meeting.

External Headwinds

"External headwinds continue to weigh on India's outlook, including tighter US immigration costs for H-1B visas that affect Indian IT services, in addition to elevated US tariff (50 per cent) on Indian goods; these factors could temper credit demand alongside broader macro uncertainty," the report added. However, with a good monsoon and rationalisation of the GST rate, the central bank revised the growth projections for FY26 upwards.

Potential Rate Cut Ahead

The Reserve Bank of India's (RBI) Governor's monetary policy statement has opened up the possibility of another 25 basis points (bps) rate cut, even as the central bank decided to maintain the status quo on key rates and retain a neutral stance. According to the policy statement, the current macroeconomic conditions and outlook have created space for further policy easing to support growth. ( ANI )

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