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Saturday 25 January 2020

GDP growth will be 7.4% this year; RBI lowers inflation target

The Reserve Bank today lowered retail inflation target for the first half of current fiscal to 4.7-5.1% on sharp moderation in food price rise and the likelihood of a normal monsoon

Mumbai: The Reserve Bank expects India’s economy to grow at the rate of 7.4% in the current fiscal, up from 6.6% in 2017-18, on account of the revival in investment activity. The growth will accelerate from 7.3-7.4% in the first half of 2018-19 to 7.3-7.6% in the second of half of the current fiscal, said the first bi-monthly monetary policy statement for 2018-19.

“On the whole, GDP growth is projected to strengthen from 6.6% in 2017-18 to 7.4% in 2018-19 in the range of 7.3-7.4% in H1 and 7.3-7.6% in H2 with risks evenly balanced,” it said.

Several factors, the RBI said, are expected to accelerate the pace of economic activities in the year. “There are now clearer signs of revival in investment activity as reflected in the sustained expansion in capital goods production and still rising imports, albeit at a slower pace than in January,” it said.

Second, global demand has been improving, which should encourage exports and boost fresh investment, it added.

The Economic Survey tabled in Parliament on 29 January, had estimated that India would re-establish itself as the world’s fastest-growing major economy with GDP expanding by 7-7.5% in 2018-19.

The RBI noted that “it is especially important that domestic macroeconomic fundamentals are strengthened, deleveraging of distressed corporates and rebuilding of bank balance sheets persisted with, and the risk-sharing markets deepened”.

RBI lowers inflation target

The Reserve Bank today lowered retail inflation target for the first half of current fiscal to 4.7-5.1% on sharp moderation in food price rise and the likelihood of a normal monsoon.

In its bi-monthly policy review in February, the RBI had projected inflation in the 5.1-5.6% range in the first half of 2018-19.

In its first policy review for the current fiscal, the RBI has kept the key repo rate — at which it lends to banks — unchanged at 6%.

The decision of the Monetary Policy Committee (MPC) is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of ± 2% while supporting growth, the RBI said.

Besides, it has also lowered the inflation outlook for last quarter of previous fiscal, ending on 31 March, to 4.5% from 5.1% it has projected in February policy review.

For the second half 2018-19, the inflation outlook is projected at 4.4%, down from previous projection of 4.5-4.6%.

“Actual inflation outcomes in January-February averaged 4.8%, largely reflecting the sharp decline in vegetable prices and significant moderation in fuel group inflation. The available information suggests that vegetable prices continued to moderate in March as well,” the RBI said.

Several factors are likely to influence the inflation outlook, it said.

“With the sharp moderation in food prices in February-March, the inflation trajectory in H1:2018-19 is expected to be lower than the projection in the February statement, despite a likely reversal in food prices in H1,” it added.

The RBI said it expects that overall food inflation should remain under check on the assumption of a normal monsoon and effective supply management by the government.

International crude oil prices have become volatile in the recent period, with a distinct hardening bias in the second half of March, even as the increase in shale production was more than expected. This has adversely impacted the outlook for crude oil prices.

“On current assessment, Indian domestic demand is expected to strengthen during the course of the year… Taking these factors into consideration, projected CPI inflation for 2018-19 is revised to 4.7-5.1% in H1:2018-19 and 4.4% in H2, including the HRA impact for central government employees, with risks tilted to the upside,” it said.

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