In its economic review for November, the ministry also said the “combination of monetary policy stance and macro-prudential measures by the central bank may have contributed to the demand slowdown” in the first half of FY25. It termed the RBI’s move to lower the cash reserve ratio to 4% from 4.5% as “good news”. This will enable banks to lend more and should help boost credit growth, which has “slowed a little too much and quickly in FY25”, the ministry said.
RBI has, however, maintained the repo rate at 6.5% since February 2023 to curb price pressure.
Last month, commerce and industry minister Piyush Goyal had exhorted the RBI to lower the interest rates. FM Nirmala Sitharaman, too, had flagged “stressful” bank interest rates and underscored the need for lowering industry’s borrowing costs.
The ministry’s review said sluggish hiring and compensation practices in the corporate sector despite robust profitability have also played their part in the urban consumption growth slowdown, even as rural demand remains resilient.
Having expanded at 8.2% in the last fiscal, the economic growth moderated to 6% in the first half of FY25, thanks primarily to the deceleration in the three months through September to a 7-quarter low of 5.4%. The economy will grow around 6.5% in FY25, the ministry reiterated in the review.Looking into FY26, newer uncertainties have emerged, the ministry said. World trade growth is looking more uncertain than before and elevated global stock markets continue to “pose a big risk”.The strength of the dollar and a rethink on the path of policy rates in the US have put emerging market currencies under pressure. This, in turn, will make monetary policymakers in these countries think more deeply about the path of their policy rates.
