RBI cuts growth forecast to 5% : The Tribune India

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RBI cuts growth forecast to 5%

MUMBAI: After five consecutive cuts in interest rates this year, the Reserve Bank of India today left key rates unchanged even as it lowered India’s GDP growth forecast to 5 per cent from the current 6.1 per cent.

RBI cuts growth forecast to 5%


Shiv Kumar

Tribune News Service

Mumbai, December 5

After five consecutive cuts in interest rates this year, the Reserve Bank of India today left key rates unchanged even as it lowered India’s GDP growth forecast to 5 per cent from the current 6.1 per cent.

Unexpectedly hitting a pause button on cutting interest rate, the RBI gave more importance to prevailing inflation pressure and rising food prices over a worrying slowdown in the economy.

The six-member Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, unanimously voted to hold the key repo rate at 5.15 per cent and reverse repo rate at 4.90 per cent. The MPC said it was maintaining an “accommodative” stance, which has been interpreted by analysts as over-ruling chances of rates being increased in the coming months. The RBI said the upsurge in food prices was expected to keep retail inflation rate rising in the near-term. However, the MPC noted that inflation was likely to moderate below target by Q2 of 2020-21.

“The MPC recognises that there is monetary policy space for future action. However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture. Accordingly, the MPC decided to keep the policy repo rate unchanged and continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target,” the RBI said in a statement.

The central bank also revised upwards its consumer price index inflation projection to 5.1-4.7 per cent for the second half of the current financial year and to 4-3.8 per cent for the first half of 2020-21. 

“Domestic demand has slowed down, which is being reflected in the softening of inflation excluding food and fuel,” it said.

The statement noted that the real GDP growth projected in the October policy was at 6.1 per cent for 2019-20. However, actual “GDP growth for Q2:2019-20 turned out to be significantly lower than projected”. The projections for the second half of the current financial year have been lowered downwards to 4.9 to 5.5 per cent.

The RBI, however, hoped that the measures initiated by the government over the past few months would spur domestic demand.

Later, Das told reporters that globally growth appeared to have become subdued though there were some signs of resilience. He was hopeful that Rabi sowing appeared to be good despite the delay in harvesting the kharif crop. 

“The slowdown in GDP growth was cushioned by a jump in government final consumption expenditure. On the supply side, gross value added (GVA) growth decelerated to 4.3 per cent in Q2, pulled down by contraction in manufacturing. The growth in the services sector moderated, but agricultural GVA growth increased marginally. Beyond Q2, there are several positive developments which could turn out to be green shoots depending on how they evolve,” Das added.


Bi-monthly policy

  • Various high-frequency indicators suggest demand conditions remained weak
  • RBI continues with accommodative stance to revive growth
  • Recognises there is policy space for future action
  • Revises upwards inflation projection for second half to 5.1-4.7% 

Forex hits new high

  • Foreign exchange reserves surged to new high of $451.7 bn, gaining $38.8 bn this fiscal
  • Rupee rose to settle 24 paise higher at 71.29 to US dollar 

6.1%   the earlier growth forecast for the current fiscal, lowered to 5% 


Can’t expect cut every time: RBI GOVERNOR

You must cut when the impact is maximum; the timing is also very important rather than going on mechanically cutting the rates on every occasion. — Shaktikanta Das

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