Home >News >India >RBI sees faster recovery slowing economic contraction but inflation a risk

NEW DELHI: The Reserve Bank of India (RBI) expects the Indian economy to contract at a slower pace of 7.5% in 2020-21 (April-March) after a more-than-anticipated faster recovery, according to RBI governor Shaktikanta Das. The central bank in its October statement had projected the economy to contract by 9.5%.

Goldman Sachs expects the Indian economy to contract by 10.3% in 2020-21. Moody’s expects the same to be of the magnitude of 8.9%.

“The economy is recuperating faster than anticipated. Rural economy demand is expected to strengthen further while urban demand is also gaining momentum," Das said in a TV address.

Das said corporate earnings so far indicated that demand recovery is happening while profit margins are rising on the back of cost savings.

The RBI Governor’s address came after RBI’s Monetary Policy Committee (MPC) concluded its four-day deliberations today on interest rates, growth and inflation outlook. The MPC decided to keep key policy rates unchanged while continuing to maintain an accommodative stance through March as well as into the next financial year.

The policy repo rate, the benchmark rate at which RBI lends to the banks, will stay at 4%. The reverse repo rate will continue to be 3.35%.

Das said the MPC felt private investment is still slack and capacity utilization hasn’t fully recovered even as fiscal stimulus moves to support growth-generating investment.

“While exports are on an uneven recovery, the prospects have brightened with the progress on the vaccines. Taking these factors into consideration, real GDP growth is projected at (-) 7.5% in 2020-21: (+) 0.1% in Q3:2020-21 and (+) 0.7% in Q4:2020-21; and 21.9% to 6.5% in H1:2021-22, with risks broadly balanced," Governor Das said in a statement.

Das sounded a cautionary note on the subject of inflation, saying the outlook for inflation has turned adverse relative to expectations in the last two months. While cereal prices may continue to soften with the bumper kharif harvest arrivals and vegetable prices may ease with the winter crop, other food prices are likely to persist at elevated levels, the MPC felt.

“Cost-push pressures continue to impinge on core inflation, which could remain sticky. Taking into consideration all these factors, CPI inflation is projected at 6.8% for Q3:2020-21, 5.8% for Q4:2020-21; and 5.2% to 4.6% in H1:2021-22, with risks broadly balanced ," Das said during the TV address.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Edit Profile
My ReadsRedeem a Gift CardLogout