CPI inflation forecast raised to 5.1-4.7%, GDP growth forecast scaled down to 4.9-5.5% for H2 of 2019-20
The Monetary Policy Committee (MPC) of the Reserve Bank of India at its meeting on 05 December 2019 has decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.15%. Consequently, the reverse repo rate under the LAF remains unchanged at 4.90%, and the marginal standing facility (MSF) rate and the Bank Rate at 5.40%.These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.
The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.
In the fourth bi-monthly resolution of October 2019, CPI inflation was projected at 3.4% for Q2:2019-20, 3.5-3.7% for H2:2019-20 and 3.6% for Q1:2020-21 with risks evenly balanced. The actual inflation outcome for Q2 evolved broadly in line with projections - averaging 3.5%. The inflation print for October, however, was much higher than expected.
The CPI inflation projection is revised upwards to 5.1-4.7% for H2:2019-20 and 4.0-3.8% for H1:2020-21, with risks broadly balanced.
The real GDP growth for 2019-20 in the October policy was projected at 6.1% - 5.3% in Q2:2019-20 and in the range of 6.6-7.2% for H2:2019-20 - with risks evenly balanced; and 7.2% for Q1:2020-21. GDP growth for Q2:2019-20 turned out to be significantly lower than projected.
Real GDP growth forecast for 2019-20 is revised downwards from 6.1% in the October policy to 5.0%, 4.9-5.5% in H2 of 2019-20 and 5.9-6.3% for H1:2020-21. While improved monetary transmission and a quick resolution of global trade tensions are possible upsides to growth projections, a delay in revival of domestic demand, a further slowdown in global economic activity and geo-political tensions are downside risks.
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.
All members of the MPC - Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Bibhu Prasad Kanungo and Shaktikanta Das - voted in favour of the decision.
The next meeting of the MPC is scheduled during 4-6 February 2020.
Powered by Capital Market - Live News
Disclaimer: No Business Standard Journalist was involved in creation of this content
