RBI Governor Shaktikanta Das, during the MPC meet announcement today, said the central bank expects the Indian economy to contract 7.5 per cent in FY21. This is an improvement on its previous assessment of 9.5 per cent contraction. The RBI's revised projection stems from the recent boost in economic revival -- both in rural as well as urban areas -- in many sectors.
The RBI Governor said he hoped the second half of the fiscal year will show positive growth. While the economy contracted for the second successive quarter, declining 7.5 per cent year-on-year, there was something to cheer about. The GDP grew at 23.2 per cent sequentially signalling a gradual rebound in the economy after 24% contraction in the quarter ending June.
It also remains the best quarter-on-quarter growth since 1996 when the country started giving out quarterly numbers. The current GDP numbers are even better than the ones based on the RBI's recent "nowcast" model, which projected the economy to shrink 8.7 per cent.
Meanwhile, Das said the MPC voted unanimously to keep the policy repo rate unchanged at 4 per cent and reverse repo rate at 3.35 per cent. The Marginal Standing Facility (MSF) rate and the bank rate also remained unchanged at 4.25 per cent. RBI Governor Shaktikanta Das said inflation is likely to remain elevated with some relief in the winter months from prices of perishables and bumper Kharif arrivals.
He added the central bank will most likely keep an "accommodative" stance in the near future. "MPC decided to continue with accommodative stands of monetary policy as long as necessary, at least till the current financial year & into next year to revive growth on a durable basis & mitigate the impact of COVID-19 while ensuring that inflation remains within the target," he said.
The RBI Governor said the Indian economy was in recovery mode and entering a "decisive" phase. India has been able to arrest near-term financial risks amid the coronavirus pandemic, he said, adding the rural economy has shown resilience.