Labourers work at a construction site for a coastal road project in Mumbai on January 12, 2022.
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According to the country's central bank chief, India could achieve sustainable economic growth of up to 8 percent in the medium term.
His comments come shortly after data showed India's gross domestic product fell to 6.7% in the second quarter, compared with 8.2% in the same period last year. The figures have increased pressure on the central bank to start its own rate-cutting cycle sooner rather than later.
In an exclusive interview with CNBC's Tanvir Gill on Friday, Reserve Bank of India (RBI) Governor Shaktikanta Das said the country's expected growth rate over the next few years is 7.5 percent, “with upside potential.”
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He said it was difficult to say what healthy growth would look like in the world's most populous country, but growth of 7.5 to 8 percent could be “sustainable” in the medium term.
India has already been called “the fastest-growing large economy in the world” by the International Monetary Fund, and Goldman Sachs projects that India will become the world’s second-largest economy by 2075 – overtaking Japan, Germany and the United States, and second only to China.
However, India's growth rate has slowed in recent quarters and the IMF warned in July that economic growth was likely to slow to 6.5 percent in 2025.
Shaktikanta Das, Governor of the Reserve Bank of India (RBI), speaks during the Global Fintech Fest 2024 on August 28, 2024 in Mumbai, India.
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This move comes after major central banks – including the European Central Bank, the Bank of England and the Swiss National Bank – began easing their monetary policies in recent months.
The US Federal Reserve is widely expected to join the interest rate cuts club later this week, further increasing pressure on India to begin easing its policy.
“This seems to be the season for rate cuts,” Das said. “But seriously, you see, our monetary policy is primarily, and I want to stress this, primarily driven by our domestic macroeconomic conditions, our domestic inflation. [and] growth dynamics and outlook,” he added.
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“So we are governed by that. Yes, of course what is happening around us, what the Fed is doing or what the ECB is doing or what some of the other central banks are doing has an impact on us and we are watching that,” Das said.
“But ultimately our decision will be determined by domestic political factors.”
RBI chief: Fed rate cut will not affect India
Fed policymakers have laid the groundwork for a rate cut ahead of their two-day meeting that begins Tuesday. The only remaining question seems to be how much the Fed will cut rates.
Some economists argued that the Fed should cut interest rates by 50 basis points, accusing the central bank of having gone “too far and too fast” in tightening its monetary policy in the past.
Others called such a move “very dangerous” for the markets and instead urged the central bank to cut interest rates by 25 basis points.
“We are not influenced by how much they cut interest rates, whether it is 25 or 50, or how often and at what frequency they cut interest rates,” Das said, referring to the prospect of a Fed rate cut.
Women (silhouettes) walk past the logo of the Reserve Bank of India (RBI) displayed at the Global Fintech Fest exhibition in Mumbai.
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When asked whether the RBI's Monetary Policy Committee (MPC) would actively consider a rate cut in early October, Das replied: “No, I cannot say.”
“We will discuss and decide in the MPC but as far as growth and inflation dynamics are concerned, I would like to say two things. First, growth dynamics remain good, India's growth story is intact and as far as inflation outlook is concerned, we have to look at the month-on-month dynamics,” he continued. “On that basis, we will take a decision.”
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