RBI cuts GDP growth forecast to 6.1%

Mumbai: The Reserve Bank on Friday sharply cut its economic growth projection for this fiscal to 6.1 per cent from 6.9 per cent earlier, but expressed hope that the growth will recover in the second half of 2019-20.

The central bank's estimates come in the wake of GDP growth sliding to a six-year low of 5 per cent in the June quarter, on a massive slowdown in consumption and private sector investments.

To boost growth economic growth and bring down cost of funds, the apex bank reduced benchmark repo rate by 25 basis points to a decade low of 5.15 per cent.

The previous lowest repo rate of 5 per cent was recorded in March 2010. Following the rate cut, the reverse repo rate was reduced to 4.9 per cent.

The government has taken a slew of measures, including a massive 10 percentage point cut in corporate taxes and promises of front-loading bank recapitalisation to support the number.

In the monetary policy report released on Friday, the central bank said the growth momentum will pick up with every quarter on factors like government measures, its policy rate cuts and also favourable base effects.

The GDP growth will recover to 7 per cent in 2020-21, it said, adding, the near-term outlook of the economy is "fraught with several risks".

Enumerating the reasons for its sharp cut in growth estimate, the RBI said, the expected pick-up in both private consumption and investment failed to materialise, and exports lost momentum under the weight of the slump in world trade.

"Taking into account the baseline assumptions, survey indicators, reductions in the policy repo rate since February 2019, the base effects and model forecasts, real GDP growth is projected at 6.1 per cent in 2019-20 -- 5.3 per cent in Q2, 6.6 per cent in Q3, 7.2 per cent in Q4 -- with risks evenly balanced," the monetary policy statement said.

An escalation of trade tensions, a hard or no-deal Brexit and increased volatility in global financial markets pose downside risks to the baseline growth path, it said.

On the upside, the GDP growth momentum can be helped by the government's measures in August-September to boost growth and investment – policy reforms on FDI, upfront release of funds for recapitalisation of public sector banks (PSBs), merger of PSBs, it said. Other steps that will help pick up growth include incentives for exports and real estate, reduction in corporate income tax rate – along with a faster resolution of stressed assets, and a faster pace of transmission of past repo rate cuts, it added.

A half-yearly survey of professional forecasters conducted by the RBI pegged the GDP growth to come at 6.1 per cent and move up to 7 per cent in 2010-21, the same as the central bank's own estimates.