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RBI forecast annual growth @ 5%, no change in repo rates

New Delhi: After five rate cuts in a row, the Reserve Bank of India (RBI) on Thursday retained the repo and reverse repo rates unchanged, predicting a truncated 5 per cent annual growth rate for fiscal 2019-20..

Contrary to expectations, RBI kept the repo rate unchanged at 5.15 per cent in its fifth bi-monthly monetary policy review of the year. Many economists had evinced confidence that central bank’s six-member Monetary Policy Committee (MPC) would lower the key interest rate once again as growth in the second quarter reached a six-year low of 4.5 per cent.

This was seen as good news for fixed deposit investors who have been seeing the rates fall throughout the year. However, the central bank already cut repo rate at which banks lend from the RBI without any improvement in growth.

In what seems to be another setback, the central bank also lowered its GDP growth forecast for the entire year from 6.1 per cent to 5 per cent.

In a statement, RBI said, “GDP growth for the second quarter (Q2) of 2019-20 turned out to be significantly lower than projected. Various high-frequency indicators suggest that domestic and external demand conditions have remained weak. Based on the early results, the business expectations index of the Reserve Bank’s industrial outlook survey indicates a marginal pickup in business sentiments in the fourth quarter (Q4).”

The RBI expressed concern over contraction in the output of eight core industries with several key sectors, including manufacturing and construction.

Citing a sudden spike in inflation, it sharply increased its projection from 4.7 to 5.1 per cent after retail inflation jumped to a 16-month high of 4.62 per cent in October.

The RBI’s growth and inflation forecast could be a matter of concern as the situation could worsen further, as Finance Minister Nirmala Sitharaman had stated that slow economic growth has not bottomed out yet.

(Prachi)

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