RBI hopeful of economic growth surpassing World Bank estimates

Mumbai: RBI Governor Raghuram Rajan today kept growth projections for Indian economy unchanged at 7.4% for the current financial year, higher than 7.3% forecast by the World Bank."The Indian economy is currently being viewed as
rbi hopeful of economic growth surpassing world...
India TV Business Desk February 02, 2016 17:56 IST

Mumbai: RBI Governor Raghuram Rajan today kept growth projections for Indian economy unchanged at 7.4% for the current financial year, higher than 7.3% forecast by the World Bank.

"The Indian economy is currently being viewed as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude. For 2016-17, growth is expected to strengthen gradually, notwithstanding significant headwinds. Based on an assessment of the balance of risks, GVA (Gross Value Added) growth for 2016-17 is projected at 7.6%", Rajan said while announcing the sixth and final bi-monthly monetary policy for 2015-16.

He said the current momentum of growth is reasonable, though below what should be expected over the medium-term. RBI stressed that the underlying growth drivers need to be rekindled to place the economy durably on a higher growth trajectory.

The apex bank kept the key repo rate, at which it lends to commercial banks, unchanged at 6.75%, largely in line with market expectations.

"The Reserve Bank continues to be accommodative even as it leaves the policy rate unchanged in this review, while awaiting further data on the development of inflation," Rajan said. He added that structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth, given the condition retail inflation remains at RBI's target of 5% by end of 2016-17.

RBI expects the growth in the next fiscal to strengthen gradually, notwithstanding the significant headwinds. Weak domestic private investment, concerns on stalled projects, excess capacity and sluggish external demand dampening export to act as headwinds, it said.

"Expectations of a normal monsoon after two consecutive years of rainfall deficiency, the large positive terms of trade gain, improving real incomes of households and lower input costs of firms should contribute to strengthening the growth momentum," added the policy statement.

The revival of private investment, in particular, has a crucial role, especially as the climate for business improves and fiscal policy continues to consolidate, it said. RBI said the current account deficit and commitment to fiscal rectitude need to be maintained so that the foundations of stable and sustainable growth are strengthened.

Raghuram Rajan keeps policy rate unchanged at 6.75%

The Reserve bank of India (RBI) today decided to keep the policy repo rate on hold at 6.75%. The cash reserve ratio (CRR), or the portion of a bank's money maintained with the central bank in cash, is also unchanged at 4%.

RBI Governor, Raghuram Rajan, in his statement, said that if the Budget makes enough structural reforms to boost growth, the central bank could chip in with cheaper money to boost growth.

"The Reserve Bank continues to be accommodative even as it leaves the policy rate unchanged in this review, while awaiting further data on the development of inflation. Structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth, while also ensuring that inflation remains on the projected path of 5 per cent by the end of 2016-17," Rajan said announcing the 6th and final monetary policy for the current fiscal.

"Inflation has evolved closely along the trajectory set by the monetary policy stance. With unfavourable base effects on the ebb and benign prices of fruits and vegetables and crude oil, the January 2016 target of 6 per cent should be met," Rajan added.

Rajan further said that under the assumption of a normal monsoon and the current level of international crude oil prices and exchange rates, inflation is expected to be inertial and be around 5 per cent by the end of next fiscal.

Offering help to start-ups, the RBI Governor expected 7.6 per cent GDP growth next fiscal.

Meanwhile, the stock markets lowered after the RBI kept the key interest rates unchanged. The Sensex fell 61 points to hit low of 24,763.28 and the 50-share Nifty slipped 30 points to 7,525.95.

Highlights of the RBI's sixth bi-monthly monetary policy statement:

* Repo rate unchanged at 6.75 pc;

* Cash reserve ratio or CRR unchanged at 4 pc;

* Marginal standing facility rate and Bank Rate at 7.75 pc;

* Policy to remain accommodative if fiscal side helps;

* Reforms in Budget to create space for rate cut;

* Expects FY17 inflation at around 5 pc;

* Indian economy is being viewed as a beacon of stability;

* Pegs FY16 growth at 7.4 pc; FY17's at 7.6 pc;

* RBI to create a special ecosystem for startup funding;

* Prospects for the rabi harvest are improving slowly;

* First bi-monthly monetary policy for 2016-17 on April 5.

Related Tags: Raghuram RajanRBI
 
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