Economy

SBI cuts FY20 GDP growth projection to 5%

Growth rate is likely to pick up pace in FY21, says Soumya Kanti Ghosh, group chief economic adviser, SBI.

Growth rate is likely to pick up pace in FY21, says Soumya Kanti Ghosh, group chief economic adviser, SBI.   | Photo Credit: Reuters

more-in

Larger rate cuts by the RBI may not lead to material revival, the bank’s research report says

GDP growth in the current financial year could be just 5% according to a research report by State Bank of India (SBI).

This is a sharp cut from the earlier projection of 6.1% for fiscal 2019-20. The second quarter GDP number, scheduled to be announced at the end of this month, could fall to 4.2%, according to the report.

‘IIP number alarming’

Commenting that IIP growth of -4.3% for September was ‘alarming’, the report said, “Our acceleration rate for 33 leading indicators at 85% in October 2018 is down to just 17% in September 2019, with such decline gaining traction from March 2019.”

The report, authored by Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said the growth rate in FY20 should be looked through the prism of synchronised global slowdown, with countries witnessing 22-716 basis point decline between June 2018 and June 2019. India is not isolated.

“We expect growth rate to pick up pace in FY21 to 6.2%,” Mr. Ghosh said.

Rate cut expectation

The further lowering on GDP growth has raised expectation of larger rate cuts by Reserve Bank of India in the December meeting of the monetary policy committee.

RBI reduced the repo rate by 135 bps between February and October to support growth. The central bank also reduced its growth forecast for FY20 to 6.1% in the October policy from 6.9% projected in the August policy.

While commenting that larger rate cuts are expected from the RBI, the report also said such rate cuts were not likely to result in any meaningful revival of growth.

“We now expect larger rate cuts from RBI in the December policy.”

“However, such a rate cut is unlikely to lead to any immediate material revival, rather it might result in potential financial instability as debt financed consumption against an increasing household leverage had not worked in countries, and India cannot be an exception,” the report said.

Mr. Ghosh said the reluctance to use fiscal policy among policymakers appeared to stem from the thinking that monetary policy space was still adequate.

“This, we believe, could be counterproductive. In essence, markets are not unduly worried about fiscal deficit and await clarity from the government on the extent of fiscal slippage in current fiscal. Such an announcement could in fact be good for the markets,” the report added.

Referring to the recent cut in ratings outlook by Moody’s the report said it will not have any significant impact as rating actions are always a laggard indicator and the markets this time have categorically given a thumbs down to such a move.

Why you should pay for quality journalism - Click to know more

Recommended for you
This article is closed for comments.
Please Email the Editor

Printable version | Dec 15, 2019 3:26:17 AM | https://www.thehindu.com/business/Economy/sbi-cuts-fy20-gdp-growth-projection-to-5/article29955826.ece

Next Story