COVID-19 would impact economic activity in India directly due to lockdowns, and through second round effects operating through global trade and growth, the RBI said, without coming out with any growth forecast for this year
Coronavirus, the accompanying lockdowns and the expected contraction in global output in 2020 weigh heavily on the growth outlook, the Reserve Bank of India today cautioned in its Monetary Policy Report, underlining the pandemic's deepening impact on India's economic growth . "The actual outturn would depend upon the speed with which the outbreak is contained and economic activity returns to normalcy," the RBI said, warning that Covid-19 "hangs over the future, like a spectre."
Here are the some key highlights from RBI's April monetary policy report:
1) Prior to the outbreak of COVID-19, the outlook for growth for 2020-21 was looking up, the RBI said, citing bumper rabi harvest, the improving transmission of past reductions in the policy rate and last year's sharp cut in corporate tax rates.
2) But the COVID-19 "pandemic has drastically altered this outlook. The global economy is expected to slump into recession in 2020, as post-COVID projections indicate," the RBI said.
3) Last month, in an emergency move had cut the repo rate - its key lending rate - by a bigger-than-hoped 75 basis points, its lowest ever, to cushion the impact from the coronavirus outbreak.
4) The central bank had also announced to inject rupee and dollar liquidity in the domestic markets.
5) The RBI noted that though there has been a sharp fall in global crude prices which, if sustained, could improve the country’s terms of trade, "the gain from this channel is not expected to offset the drag from the shutdown and loss of external demand."
6) There are indications that the 21-day lockdown could be extended further. Prime Minister Narendra Modi told a conference of political leaders on Wednesday that several state governments had asked for an extension of the lockdown to cope with the outbreak, according to a statement issued by his office.
7) COVID-19 would impact economic activity in India directly due to lockdowns, and through second round effects operating through global trade and growth, the RBI said, without coming out with any growth forecast for this year.
8) India's economy expanded at its slowest pace in more than six years in the last three months of 2019 and nationwide lockdown is set to sharply impact March quarter growth.
9) Describing the present environment as "highly fluid", the central bank said that it is assessing the "the intensity, spread and duration of COVID-19."
10) On inflation, the RBI said, the impact of COVID-19 is ambiguous, with a possible decline in food prices likely to be offset by potential cost-push increases in prices of non-food items due to supply disruptions.
The RBI in the report projects CPI inflation to ease to 4.8% in the June quarter, 4.4% in the September quarter, 2.7% in the December quarter and 2.4% in the March quarter of fiscal year 2020/21, "with the caveat that in the prevailing high uncertainty, aggregate demand may weaken further than currently anticipated and ease core inflation further, while supply bottlenecks could exacerbate pressures more than expected."
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