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MUMBAI: The Indian economy will contract 9.5% in fiscal 2021 due to disruptions caused by the covid-19 pandemic that has hit economic activities, according to Reserve Bank of India (RBI) governor Shaktikanta Das. However, growth "may break out of contraction and turn positive during January-March" due to improving signs of recovery, he said.

The Monetary Policy Committee (MPC) of the RBI, which concluded its three-day meeting on Friday, maintained an accommodative stance to revive growth on a durable basis and mitigate the impact of covid-19 disruptions as long as inflation remains within the target of 4%, Das said.

He added that the country’s “focus must shift from containment to revival".

Global and domestic ratings agencies also expect India's GDP to contract this fiscal given the pandemic-induced disruptions. According to the World Bank, India’s GDP growth is likely to contract 9.6% in FY21, a further contraction from its earlier forecast of 3.2%.

Fitch has also forecast the country’s GDP to contract to 10.5% in the current fiscal, a downward revision from negative 5% earlier.

The RBI kept the repo rate, the key interest rate at which it lends to commercial banks, unchanged at 4%, Das said. The decision is in line with the estimates of most economists as inflation continues to stay well above the outer band of the central bank’s target of 6%.

India’s headline inflation based on consumer price index (CPI) fell marginally to 6.69% in August from 6.73% in July, ruling out the possibility of a repo rate cut in near term. CPI inflation was at 3.28% in August 2019. The MPC aims to keep the retail inflation at 4% within a band of +/- 2% in the medium-term through its policy rate changes.

The central bank’s six-member Monetary Policy Committee (MPC) was unanimous in its decision to stand pat on interest rates.

Three of the six members of the panel—Ashima Goyal, Jayanth R. Varma and Shashank Bhide—were appointed by the government earlier this week.

The RBI postponed its three-day MPC meeting starting 29 September to this week as vacancies for three external members could not be filled, after the tenure of Ravindra Dholakia, Pami Dua and Chetan Ghate ended in September.

Members of the MPC are not eligible for reappointment.

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