Economy

RBI forecasts end to contraction by Q4

Reserve Bank of India Governor Shaktikanta Das announces via livestream the central bank’s monetary policy decisions in Mumbai on October 9, 2020.   | Photo Credit: PTI

The Indian central bank on Friday reiterated its resolve to revive growth impulses in the economy and mitigate the COVID-19 pandemic’s worst impacts, by extending its accommodative policy stance for the rest of this year as well as 2021-22, even as it held key policy rates unchanged in the face of high inflation. 

Reserve Bank of India Governor Shaktikanta Das said growth may “break out of contraction” mode by the January-March 2021 quarter as ‘silver linings’ are visible from September’s economic indicators as well as the COVID-19 case load curve. However, real GDP (gross domestic product) for the full year is expected to decline by 9.5%, “with risks tilted to the downside”. 

While headline inflation has persisted above the tolerance band, Mr. Das said the central bank expects consumer prices to remain elevated in the September print, but ease gradually towards the 6% target over Q3 and Q4. This is the first time the RBI has shared its growth and inflation projections this year. 

Terming the coming months as a “decisive phase” for the Indian economy in the fight against the pandemic, the Governor said: “By all indications, the deep contractions of Q1, 2020-21 (when GDP shrank 23.9%) are behind us… Barring the incidence of a second wave, India stands poised to shrug off the deathly grip of the virus and renew its tryst with its pre-COVID growth trajectory… The focus must now shift from containment to revival.” 

The newly appointed Monetary Policy Committee members, Ashima Goyal, Jayanth R. Varma and Shashanka Bhide, unanimously voted in sync with the three RBI members to leave the policy repo rate unchanged at 4% and maintain a dovish stance for “as long as necessary — at least during the current financial year and into the next year”.

RBI forecasts end to contraction by Q4
 

Although RBI expects private investment and exports to be subdued in view of anaemic demand conditions, Mr. Das said the farm sector could well lead growth revival through a rural demand spurt.

“Manufacturing firms expect capacity utilisation to recover in Q3... If, however, the current momentum of upturn gains ground, a faster and stronger rebound is eminently feasible,” the Governor said. 

Wading into the debate about the possible alphabet shape for India’s recovery, Mr. Das dug into cricketing terminology to espouse his own expectation of a three-speed recovery. Apart from agriculture, sectors such as fast-moving consumer goods, automobiles, pharma and power would “open their accounts” first, he reckoned. 

“The second category of sectors to ‘strike form’ would comprise sectors where activity is normalising gradually. The third category of sectors would include the ones which face the ‘slog overs’, but they can rescue the innings. These are sectors that are most severely affected by social distancing and are contact-intensive,” Mr Das said. 

Apart from slashing a layer of red tape to expedite exports, the central bank also announced a rationalisation of risk weightages assigned by banks for all new home loans sanctioned up to March 31, 2022. This would give a fillip to the job-intensive real estate sector that has been flailing in the pandemic, the RBI said. The stockmarkets reacted favourably to the RBI policy statement, with the BSE Sensex closing the day at 40,509 points, up 0.81%. 

Related Topics
This article is closed for comments.
Please Email the Editor

Printable version | Dec 3, 2020 1:27:12 AM | https://www.thehindu.com/business/Economy/rbi-keeps-lending-rates-unchanged/article32810230.ece

Next Story