RBI keeps rates unchanged amid rising inflation; economy likely to contract 9.5% this fiscal, says Governor Shaktikanta Das


Das said modest recovery in various high-frequency indicators in September 2020 could strengthen further in 2H FY21 with progressive unlocking of economic activity

Reserve Bank of India (RBI) Monetary Policy Committee on Friday decided to maintain status quo on key policy rates keeping in view the high inflation, said Governor Shaktikanta Das while predicting that the country’s economy may contract 9.5 percent in the current financial year.

This was the first meeting of the new Monetary Policy Committee (MPC) which was formed after the appointment of three eminent economists – Jayant Verma, Ashima Goyal, and Shashanka Bhide.

The three new external members in the panel voted in Friday’s decision.

"Monetary Policy Committee voted unanimously to keep the policy repo rate unchanged at 4 percent. MPC also decided to continue with the accommodative stance of monetary policy as long as necessary at least through the current financial year & next year," said the RBI chief.

On the economic growth of the country, Das said that the modest recovery in various high-frequency indicators in September 2020 could strengthen further in the second half of 2020-21 with progressive unlocking of economic activity.

“For the year 2020-21 as a whole, therefore, real GDP is expected to decline by 9.5 per cent, with risks tilted to the downside. If, however, the current momentum of upturn gains ground, a faster and stronger rebound is eminently feasible,” said the RBI governor.

He further said that agriculture and allied activities could well lead the revival by boosting rural demand.

Manufacturing firms expect capacity utilisation to recover in Q3:2020-21 and activity to gain some traction from Q3 onwards, he said adding both private investment and exports are likely to be subdued, especially as external demand is still anaemic.

The Indian economy is entering into a decisive phase in the fight against the pandemic, Das said adding relative to pre-COVID levels, several high-frequency indicators are pointing to the easing of contractions in various sectors of the economy and the emergence of impulses of growth.

“By all indications, the deep contractions of Q1:2020-21 are behind us; silver linings are visible in the flattening of the active caseload curve across the country. Barring the incidence of a second wave, India stands poised to shrug off the deathly grip of the virus and renew its tryst with its pre-COVID growth trajectory,” he said.

In the September 2020 round of the RBI’s survey, households expect inflation to decline modestly over the next three months, indicative of hope that supply chains are mending.

“Our projections indicate that inflation would ease closer to the target by Q4:2020-21. Our other surveys, also conducted in September, indicate that consumer confidence is turning upbeat on the general economic situation, employment and income over a one year ahead horizon,” said the RBI chief.

He further said that while the current assessment of the overall business situation remains in contraction in Q2, it has moved up from a low in Q1. Forward-looking business expectations are optimistic on the overall business situation, production, order books, employment, exports and capacity utilisation.

Image credit: File photo

All Comments