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RBI Cuts GDP Growth Forecast For FY20 To 6.1%

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RBI Cuts GDP Growth Forecast For FY20 To 6.1%
Aparajita Gupta - 04 October 2019

The Reserve Bank of India (RBI) on Friday has cut its GDP growth forecast to 6.1 per cent for 2019-20 from 6.9 per cent earlier.

Keeping in view that export prospects have been impacted by slowing global growth and continuing trade tensions, the six-member Monetary Policy Committee (MPC) of RBI has decided to slash GDP growth forecast.

“Export prospects have been impacted by slowing global growth and continuing trade tensions. On the positive side, however, the impact of monetary policy easing since February 2019 is gradually expected to feed into the real economy and boost demand. Several measures announced by the government over the last two months are expected to revive sentiment and spur domestic demand, especially private consumption.

“Taking into consideration the above factors, real GDP growth for 2019-20 is revised downwards from 6.9 per cent in the August policy to 6.1 per cent – 5.3 per cent in Q2:2019-20 and in the range of 6.6-7.2 per cent for H2:2019-20 – with risks evenly balanced; GDP growth for Q1:2020-21 is also revised downwards to 7.2 per cent,” the apex bank said in the MPC report.

Real GDP growth for 2019-20 in the August policy was projected at 6.9 per cent.

The RBI has also slashed repo rate by 25 basis points to 5.15 per cent.

“RBI has once again proved to be well ahead of the curve in unleashing monetary efficacies to combat the economic slowdown, in perfectly complementing the fiscal initiatives, with the cut of 25 bps bringing down the repo rate to 5.15 per cent . In conformity with this aggressive approach, RBI is likely to continue with its campaign for more rapid transmission of the benefits to credit users, through lower rates to a large extent linked to the base rate. There may be further cuts in the rate in the light of the GDP growth forecast being lowered from 6.90 per cent to 6.10 per cent for FY 20. We need to see more action from the government for a consumption-led recovery,” said K. Joseph Thomas, Head Research - Emkay Wealth Management.

“The policy reiterated the ‘accommodative stance’, while emphasizing that the easy monetary policy would continue for “as long as was necessary to revive growth”. RBI slashed the FY 20 GDP target from 6.9 per cent to 6.1 per cent. Signaling that policy cuts were not over, the Policy referred to “adequate monetary space still being available to address the growth needs”,” said Kumaresh Ramakrishnan, CIO-Fixed Income, PGIM India Mutual Fund.

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