RBI Governor Urjit Patel feels that GDP growth will pick up in the third and fourth quarters (of the current fiscal year) to above 7 per cent. In an interview to Mint, the Governor has said though there is a drop in GDP growth in the June quarter (to 5.7 per cent), the transitory effects relating to GST must be taken into account. Patel’s comments come in the backdrop of lower growth forecast by the RBI and opposition claiming that there is a climate of worry surrounding the economic growth of India. Last week, the RBI kept its repo rate unchanged at 6.00 per cent, and raised inflation projections.
Patel has suggested that there is an upturn in the economy. “The Nikkei India Services PMI Business Activity Index rose more than 3 percentage points in September over August; the core sector IIP (Index of Industrial Production) saw a 4.9 per cent rise in August,” he was quoted as saying by the Mint. Patel also said there is an upturn in the automobile and two-wheelers sales.
On the recent monetary policy where the rates remained unchanged, Mint quoted Patel as saying, “Growth is always there in the MPC’s scheme of things; we don’t lose sight of that, but not at the cost of inflation.”
Earlier, as the central bank left the key repo rate unchanged at per cent, it freed up liquidity trimming the statutory liquidity ratio by 50 basis points (bps) to 19.5 percent. Having anticipated a more dovish stance, the bond markets sold off, driving up the yield on the benchmark 10-year bond to a near five-month high of 6.7 per cent.
The RBI said, “The loss of momentum in Q1 of 2017-18 and the first advance estimates of kharif foodgrain production are early setbacks that impart a downside to the outlook.”
The neutral stance was attributed to a possible rise in inflation from its current level to 4.2-4.6 percent in the second half of FY18. The central bank said the monetary policy committee (MPC) had taken note of a 2-percentage point rise in CPI inflation since its last meeting in August.