Economic activity clearly losing traction: RBI Governor at MPC

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Mumbai | Published: June 21, 2019 1:35:57 AM

There are clear evidences of economic activity losing traction, as the GDP growth in Q4FY19 slowed down to 5.8%, Reserve Bank of India (RBI) governor Shaktikanta Das said while voting for a 25 basis points (bps) rate cut along with five other members in the June monetary policy meet.

Reserve Bank of India (RBI) governor Shaktikanta Das (File)

There are clear evidences of economic activity losing traction, as the GDP growth in Q4FY19 slowed down to 5.8%, Reserve Bank of India (RBI) governor Shaktikanta Das said while voting for a 25 basis points (bps) rate cut along with five other members in the June monetary policy meet.

The six-member monetary policy committee (MPC), which unanimously voted for a rate cut for the third time in 2019 and a shift in stance in the meeting, expressed concerns over the weakening economic growth which warranted the rate cut and expects inflation to remain below 4%, according to the minutes of the meeting.

“Growth impulses have clearly weakened, while the headline inflation trajectory is projected to remain below 4% throughout 2019-20 even after considering the expected transmission of the past two policy rate cuts,” he said.

The overall transmission of the rate cuts amounted to a fall of 21 basis points (bps) in the weighted average lending rates of fresh rupee loans. However, the weighted average lending rate on outstanding loans has increased by 4 basis points. “Going forward, the transmission is expected to improve, given the lags with which banks adjust their deposit and lending rates in response to changes in the policy rate,” added Das.

RBI deputy governor Viral Acharya expressed concern over the inflation outlook and fiscal slippage. “The upcoming union budget is, therefore, key to understanding the inflation outlook, especially the response to ongoing distress in the agrarian economy, caused in part by low food prices and reflected in low rural inflation of less than 2% compared to urban inflation that remains above 4%,” said Acharya.

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