On inflation, the RBI said it will stay focussed on ensuring that the economy disinflates gradually and durably.
The Reserve Bank of India has projected a growth rate of 7.8 per cent in 2015-16, higher by 30 basis points from 7.5 per cent in 2014-15, but with a downward bias to reflect the still subdued indicators of economic activity.
In its annual monetary policy review, the RBI linked the higher growth to a normal monsoon, continuation of the cyclical upturn in a supportive policy environment and no major structural change or supply shocks.
On inflation, the RBI said it will stay focussed on ensuring that the economy disinflates gradually and durably, with CPI inflation targeted at 6 per cent by January 2016 and at 4 per cent by the end of 2017-18. “Although the target for end-2017-18 and thereafter is defined in terms of a tolerance band of plus or minus 2 per cent around the mid-point, it will be the RBI’s endeavour to keep inflation at or close to this mid-point, with the extended period provided for achieving the mid-point mitigating potentially adverse effects on the economy,” RBI Governor Raghuram Rajan said.
“The outlook for growth is improving gradually. Comfortable liquidity conditions should enable banks to transmit the recent reductions in the policy rate into their lending rates, thereby improving financing conditions for the productive sectors of the economy,” it said.
Along with initiatives announced in the Budget to boost investment in infrastructure and to improve the business environment, these factors should provide confidence to private investment and, together with the conducive outlook on inflation, deliver real income gains to consumers and lower input cost advantages to corporates, the RBI said.
GDP growth estimates of the CSO for 2014-15 already project a robust pick-up, but leading and coincident indicators suggest a downward revision of these estimates when fuller information on real activity for the last quarter becomes available.