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Tuesday 21 January 2020

RBI lowers growth forecast for FY18, Sensex slides

Mumbai: The Reserve Bank today lowered the economic growth projection for 2017-18 to 6.6%, but said that it will accelerate to 7.2% in the next financial year as the roll-out of GST stabilises and credit offtake improves.

The statement issued after the 2-day meeting of the 6-member Monetary Policy Committee (MPC) of the Reserve Bank of India also said that recapitalisation of public sector banks along with resolution of stressed assets under the Insolvency and Bankruptcy Code (IBC) will create demand for fresh investments.

“GVA (Gross Value Added) growth for 2017-18 is projected at 6.6%,” it said.

In the December policy review, MPC had forecast that the GVA would expand by 6.7%.

“There are early signs of revival in investment activity as reflected in improving credit offtake, large resource mobilisation from the primary capital market, and improving capital goods production and imports,” RBI said.

Further, the process of recapitalisation of public sector banks has gotten underway and largely distressed borrowers are being referenced for resolution under the IBC, it said.

“This should improve credit flows further and create demand for fresh investment,” the RBI said, adding that export growth is expected to improve further on account of improving global demand.

RBI said that GVA expansion in 2018-19 is projected at 7.2% overall “in the range of 7.3-7.4% in H1 and 7.1-7.2% in H2” with risks evenly balanced.

The MPC noted that the economy is on a recovery path, including early signs of a revival of investment activity, the RBI said. Also, global demand is improving, which should help strengthen domestic investment activity.

The MPC has flagged the deterioration in public finances risk crowding out private financing and investment as a “downside” to the growth outlook.

Benchmark Sensex fell over 113 points in volatile trade to end at 34,082.71 today after the Reserve Bank left the key policy rate unchanged but lowered economic growth projection for 2017-18.

The 30-share index, which had bounced over 470 points in the opening trade in sync with positive leads from global markets, slipped into the negative zone as participants booked profits at higher levels and hit a low of 34,008.42. It finally finished at 34,082.71 points, down 113.23 points, or 0.33%.

The barometer had lost 2,087.31 points in the previous six straight sessions.

The wider NSE Nifty too ended 21.55 points, or 0.21% down at 10,476.70. Intra-day, it shuttled between 10,614 and 10,446.40.

The Reserve Bank opted for the widely expected status quo in key rates citing inflation concerns and flagged risks from the wider fiscal deficit.

The repo rate, at which the central bank lends short-term money, will continue to stay at 6%. The reverse repo, the rate at which it borrows from banks and absorbs excess liquidity, will remain at 5.75%.

PTI

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