RBI Predicts -9.5% GDP For 2020-21, Keeps Rates Unchanged: 10 Points

RBI says GDP growth in 2020-21 is estimated to remain in negative territory

RBI Predicts -9.5% GDP For 2020-21, Keeps Rates Unchanged: 10 Points


RBI Governor Shaktikanta Das said today that the country's economy is likely to contract 9.5 per cent in the current financial year, "with risks tilted to the downside", while maintaining a status quo on policy rates citing high inflation. The GDP may break out of the coronavirus-induced contraction and turn positive by the fourth quarter of 2020, Governor Das said. The Monetary Policy Committee - whose three new external members voted in today's policy action - unanimously favoured holding the repo rate at the existing 4 per cent, while retaining an "accommodative" stance - which rules out any hikes for the time being.


Governor Shaktikanta Das said the combined impact of demand compression and supply disruption will depress economic activity in the first half of the year, expecting a gradual recovery in the second half. The RBI's negative growth forecast is in contrast to the Finance Ministry's 2 per cent positive estimate, but is in line with the projection made by leading brokerages like Goldman Sachs which predicted 5 per cent contraction in the Indian economy this fiscal.


The Reserve Bank of India predicted the country's growth in the financial year 2020-21 in the negative zone on account of Covid-19 uncertainty and impact from over 50-day lockdown, Governor Shaktikanta Das said Friday in a televised speech at the Central Bank's Monetary Policy Committee Meet, advanced in view of the disruptions caused by the pandemic.

Here are 10 things to know:

  1. The Monetary Policy Committee kept the repo rate - or the key interest rate at which it lends short-term funds to commercial lenders - at 4.0 per cent. Consequently, the reverse repo rate - at which the RBI borrows from lenders - stood at 3.35 per cent.

    That was in line with economists' expectations. All 66 respondents in a poll by news agency Reuters had predicted a status quo on the repo rate.

  2. A large majority in that poll saw no cuts until the fourth quarter (January-March) of current financial year.

  3. The central bank retained its "accomodative" stance on monetary policy to support the coronavirus-hit economy, which rules out a hike for the time being.

  4. The RBI projected the country's GDP or gross domestic product to contract 9.5 per cent in the current financial year, which ends in March 2021. He, however, added that "a faster and stronger rebound is eminently feasible" if the current momentum of upturn gains ground.

  5. The RBI Governor said inflation is likely to remain at elevated levels in September, and ease in the third and fourth quarters of current financial year.

  6. Governor Shaktikanta Das said the country is entering into a decisive phase in the fight against the pandemic. "Relative to pre-COVID levels, several high frequency indicators are pointing to the easing of contractions in various sectors...and the emergence of impulses of growth... By all indications, the deep contractions of Q1 are behind us," he said.  

  7. On the ongoing coronavirus crisis, Mr Das said "silver linings are visible in the flattening of the active caseload curve across the country... Barring the incidence of a second wave, India stands poised to shrug off the deathly grip of the virus and renew its tryst with its pre-COVID growth trajectory."

  8. The RBI chief also said that food grain production was set for record highs, and factories as well as cities were coming back to life. "Against all odds, we shall strive and revive,"  Mr Das said, in conclusion.

  9. The RBI has already slashed the repo rate by 115 basis points (bps) since late March. The latest meeting of the Monetary Policy Committee - which has three new external members who voted in today's decision - was originally due to conclude on October 1.


The RBI's negative growth forecast is in contrast to the Finance Ministry's 2 per cent positive estimate, but is in line with the projection made by leading brokerages like Goldman Sachs, which predicted economic activity in India to contract by 5 per cent in this financial year.

"The combined impact of demand compression and supply disruption will depress economic activity in the first half of the year. ...GDP growth in 2020-21 is estimated to remain in negative territory, with some pick-up in growth impulses from H2: 2020-21 onwards," Governor Das said, also announcing a 40-basis point repo rate cut to a historic 4 per cent, in the Central Bank's yet another monetary policy measure to fight the virus pain. On March 27, the RBI had cut interest rates by 75 basis points.

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