NEW DELHI: Reserve Bank of India governor Shaktikanta Das on Thursday said India’s GDP growth will continue to contract in fiscal 2021 due to disruptions caused by the covid-19 pandemic that has hit economic activities.
Das, who was speaking after the conclusion of the three-day Monetary Policy Committee meeting, said the central bank will maintain an accommodative stance “as long as it is necessary to revive growth”.
“GDP growth in the first half of the year is estimated to remain in the contraction zone. For the year 2020-21 as a whole, real GDP growth is also estimated to be negative,” Das said in a statement.
Global and domestic rating agencies also expect India’s GDP to contract this fiscal given the pandemic-induced disruptions. According to rating agency Icra, India’s GDP growth is likely to contract 9.5% in FY21. Moody’s Investors Service has estimated the growth at zero, while S&P Global Ratings has forecast a contraction of 5%.
The six-member MPC of the Reserve Bank of India (RBI) today kept the repo rate, the key interest rate at which it lends to commercial banks, unchanged at 4%, according to a statement by the central bank governor. The MPC was unanimous in its decision to stand pat on interest rates.
The governor also said while there was room to reduce the repo rate, the MPC will use this space judiciously, striking a balance between keeping the inflation within the RBI’s target and reviving the economy.
Das said inflation will be elevated in the September quarter of the current fiscal but will ease in the second of the year, with economic recovery expected to be robust in rural areas.
The consumer price inflation (CPI) softened to 6.1% in June from 7.2% in April, as lockdown lifted and supplies improved. The MPC aims to keep the retail inflation at 4% within a band of +/- 2% in the medium-term through its policy rate changes.
“An early containment of the COVID-19 pandemic may impart an upside to the outlook. A more protracted spread of the pandemic, deviations from the forecast of a normal monsoon and global financial market volatility are the key downside risks,” Das said.
The reverse repo rate, the rate at which RBI buys securities from the same banks, was also kept unchanged at 3.35% and so was the bank rate at 4.25%.
This was the last time the current six-member MPC met after a four-year tenure. The MPC will in a month have four new faces.