According to the report, macroeconomic risks have shifted from geopolitical tensions to local weather conditions, which are expected to play a key role in shaping future monetary policy.
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The firm has raised its FY27 GDP growth forecast to 6.9 per cent from 6.5 per cent, citing stronger consumption and investment demand.
The report projected FY27 consumer price index (CPI) inflation at 4.8 per cent, lower than earlier estimates. However, it warned that below-normal monsoon rainfall and rising El Nino risks could fuel food inflation in the second half of FY27 and affect rural economic activity.
It added that comfortable food grain stocks, improving terms of trade and softer global commodity prices are expected to cushion the economy against these risks.
On the external front, BofA Securities expects India’s current account deficit to narrow to 1.2 per cent of GDP in FY27 due to lower oil prices, while the fiscal deficit is projected to remain at 4.5 per cent of GDP.
The report said supportive liquidity conditions and a stronger balance of payments position are likely to support credit growth.
It also noted that an improving macroeconomic environment will benefit Non-Banking Financial Companies (NBFCs), particularly in retail, vehicle finance and MSME lending, as stronger consumption and investment boost credit demand.
However, BofA Securities cautioned that the evolving inflation outlook and expected RBI rate hikes could keep funding costs elevated for some lenders. It said that liability management, pricing discipline and asset quality monitoring will remain important for NBFCs.