RBI FY21 GDP forecast: Growth at -7.5%, challenges from rising inflation persist

RBI Governor Shaktikanta Das has expressed that the Reserve Bank of India (RBI) expects the Indian economy to contract at a slower pace of 7.5% than what has been predicted by other agencies, even as inflation continues to raise new problems.

According to Mint, Goldman Sachs has predicted the Indian economy to contract by 10.3% in 2020-21 and Moody’s expects the same to be of the magnitude of (-) 8.9%.

“The outlook for inflation has turned adverse relative to indications last two months. The MPC sees the inflation at 6.8% for Q3 (September-December) and 5.8% for Q4,” Das said in a televised address.

According to the Consumer Price Index (CPI) data released by the Ministry of Statistics and Programme Implementation, inflation was registered at 7.61% in October — the highest since May 2014. Retail inflation recorded at 7.27% in September, according to data. The Consumer Food Price Index soared up to 11.07% in October, up from 10.68% in September.

Das’s comment on economic growth and inflation was in light of the central bank’s Monetary Policy Committee’s (MPC) decision today to keep key policy rates constant while continuing to maintain an accommodative stance through March as well as into the next financial year. The policy repo rate, the benchmark at which RBI lends to the banks, will stay at 4%, RBI Governor Shaktikanta Das said in a televised address. The reverse repo rate shall be maintained at 3.35%.

“The economy is recuperating faster than anticipated. Rural economy demand is expected to strengthen further while urban demand is also gaining momentum,” Das said. Das said corporate earnings so far indicated have reflected demand recovery while profit margins are gaining elevation in the backdrop of cost savings.

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