The GDP growth may moderate to 5.9 to 6.1 per cent in Q4FY19, pulling down growth rate for entire fiscal to below 7 per cent, a report said. The decline in economic growth may push the RBI to reduce rates by 0.50 per cent in the June monetary policy review so as to boost weak economy, news agency PTI reported citing the SBI Ecowrap report. GVA (gross value added) growth may stand at 6 per cent or dip marginally below 6 per cent at 5.9 per cent, it noted, adding the GDP growth for the full fiscal at 6.9 per cent. The official GDP data is scheduled to be out on May 31.
Even as there is a slowdown, it could turn out to be ‘transitory’ if proper policies are adopted in the interim, the report added. Citing high interest rates as an obstacle to the investment, the SBI said the rate could be slashed by 0.35-0.50 per cent at its next policy announcement. Only when the transmission takes place, that the cut in the interest rates could be effective, it added. Suggesting ways to ensure proper transmission of cuts, the SBI report said that the RBI should ensure adoption of external benchmark rate which moves in tandem with the central bank’s repo rate. The asset-liability side of the banks must also move in sync and the repo rate is directly benchmarked to external benchmark or non-volatile bank liabilities or CASA that are mostly used for transaction purposes, the report added.
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The RBI is scheduled to announce its second monetary policy review on June 6. In this policy outing, the central bank needs to ensure that there is adequate liquidity in the system amid weak government spending and currency leakage owing to general elections.