New Delhi, Aug 6 For the next leg of growth in India, it is time to look beyond monetary and fiscal support, and focus on structural reforms, in order to reach "aspirational" levels of growth, an HSBC Global Investment Research report said on Wednesday.
On that front, some trade reforms were already underway - slashing tariffs on intermediate inputs, signing more trade pacts, welcoming FDI, and improving the business environment across states.
"But for impact, these must run deep," said the report.
"We think that if subsequent growth data comes out weaker, the RBI could well lower its FY26 growth forecast and deliver a cut. We are holding on to our 25bp rate cut in Q4 2025," it added.
But beyond that, there is only so much growth support the RBI can give, it noted.
"We find that fiscal spending, especially on capex, has picked up in recent months, and space for even more fiscal stimulus may be limited," the report mentioned.
In a unanimous decision across the six MPC members, the RBI kept the repo rate on hold at 5.5 per cent.
"This was in line with our expectations. Today's hold follows a large quantum of easing that has already been delivered," said the HSBC report.
In the first half of 2025, the RBI has cut the repo rate by 100bp, announced a 100bp reduction in the CRR (over 4 tranches between September and November), and also announced an infusion of Rs 9.5 lakh crore of durable liquidity (via OMOs, CRR cut announcement, buy-sell swaps, and VRRs).
The RBI pegged its Q1 FY27 growth forecast at 6.6 per cent, higher than its (unchanged) growth forecast of 6.5 per cent for FY26, and also said that "growth is robust ... though below aspirations".
While it said that urban consumption is weak, it was quick to say that rural consumption and public capex remain strong.
Even while marking down its FY26 inflation forecast (to 3.1 per cent from 3.7 per cent), the RBI pegged its Q1 FY27 inflation forecast at an elevated 4.9 per cent, driven by low base effects.
In its commentary, it pointed out the outsized role of low vegetable prices in driving inflation lower today, but core inflation is inching up.
"This combination of higher one-year ahead growth and inflation forecasts may well suggest that the bar for further easing is rather elevated," the HSBC report noted.
Even though transmission of recent rate cuts into lending and deposit rates is off to a good start, RBI Governor Sanjay Malhotra said that the final impact on credit demand could take more time.
"From that perspective, today's is more a placeholder policy than a hawkish policy in our view," the report said.
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