Despite geopolitical tensions and China’s economic slowdown the global economy has managed to grow at a decent pace buoyed by resilient US domestic demand and India’s continued rapid growth. Domestically, India’s economic growth has likely moderated in Q1 FY25 owing to temporary disruptions from heatwaves and general elections. However, the macro-outlook continues to be favourable with economic growth likely to gain support from the expectation of revival in rural demand owing to the prediction of above-normal rainfall. 

Headline inflation printed to a near-five year low in July, thanks to a supportive base effect. We retain our view of a shallow rate cut in Q3 FY25 with higher probability assigned to December amidst no signs of softening observed in the previous policy in August and resilient growth.  However, we do not rule out a change in stance in October given the RBI will have a complete picture of the monsoon by then along with the Fed’s decision in September.