MUMBAI: The rising tides of global risks, accentuated by the Brexit mess and the spectre of trade war, could cripple India’s growth run, the RBI said on Thursday while cutting GDP growth projection for FY20 to 7.2 per cent from 7.4 per cent it estimated in February.
“The slowdown appears to be synchronised across advanced economies and some major emerging market economies as well,” said RBI governor Shaktikanta Das while announcing the first monetary policy for this fiscal.
RBI handed down a second straight forward repo rate cut, lowering the policy rate to 6 per cent, and announced more measures to improve liquidity in the banking system to help banks pass on the rate-cut benefit to customers.
The rate cut reflects RBI’s concerns about India’s growth story, buffeted by global challenges. Apart from global challenges, the central bank cited domestic factors such as slower manufacturing growth and subdued investment scenario to cut its GDP projection.
RBI’s monetary policy committee has kept its policy stance at ‘neutral’ indicating room for future rate cuts depending on the way growth and inflation moves.
In its February policy, RBI had showed a shift from inflation control goal to supporting growth. Thursday’s policy reiterates that stand.
“Going forward, the RBI will continue to watch the evolving macroeconomic situation and shall act in time and act decisively. With the inflation outlook remaining benign, the RBI will address the challenges to sustained growth of the Indian economy, while ensuring price stability on an enduring basis in pursuance of its mandate in the RBI Act,” Das stated.
The MPC report highlights that the output gap remains negative and the country’s economy may be headed for tough times, owing to global factors. It also underlines the need to strengthen domestic growth by spurring private investment, which has remained sluggish. This hints at more rate cuts are in the offing, said Abheek Barua, Chief Economist, HDFC Bank.
RBI notes that credit growth has been strong at 14 per cent, but credit to SMEs remains tepid. With the new government to be place by June, RBI would also be watching the fiscal situation and monsoon forecast before deciding on further rate cuts.