Home / Industry / Banking /  RBI sees higher inflation in first half of FY20

New Delhi: The Reserve Bank of India today revised its forecast for India’s economic growth downwards to 7.0% from 7.2% with “risks evenly balanced". The central bank also revised its inflation projections, raising it a little for the first six months of the year while cutting it for the second half.

The RBI has pegged the inflation rate at 3.0-3.1% for April-September and 3.4-3.7% for the following six months. The bank had earlier seen the rise in prices at the rate of 2.9-3.0% and 3.5-3.8% for the two periods, respectively.

The bank’s Monetary Policy Committee (MPC) took note of the fact that growth impulses had weakened significantly as reflected in a further widening of the output gap compared to the April 2019 policy.

A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern, the MPC said. The headline inflation trajectory remains below the target mandated to the MPC even after taking into account the expected transmission of the past two policy rate cuts.

Headline retail inflation inched up by a mere 6 bps in April to 2.92%. While this was the highest inflation print in half a year, it was the ninth consecutive month in which the retail inflation, as reflected by the Consumer Price Index, had come in below the RBI's medium-term target of 4%.

While inflation has given no worries to policymakers, the same can’t be said about the economic growth.

As per figures released Friday by the Central Statistics Office (CSO), GDP growth rate declined for the fourth consecutive quarter in Jan-Mar to come in at a 20-quarter low of 5.8%. The growth rate for the last financial year (2018-19) — 6.8% -- was also a five-year low, coming in below the CSO’s second advance estimate of 7%.

‘There is scope for the MPC to accommodate growth concerns by supporting efforts to boost aggregate demand, and in particular, reinvigorate private investment activity, while remaining consistent with its flexible inflation targeting mandate," the MPC said as it moved to cut key policy rates by 25 basis points for the third time in a row.

The MPC also changed its stance to ‘accommodative’ from ‘neutral’, reflecting its concern over growth and the need to spur economic activity by lower interest rates.

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