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RBI lowers economic growth forecast to 7% for FY20 | Updates

Amid concerns of a slow down in the economy, the central bank lowered its gross domestic product (GDP) forecast to 7 per cent for the current fiscal from 7.2 per cent projected earlier.

India TV News Desk India TV News Desk
New Delhi Updated on: June 06, 2019 13:02 IST
The repo rate, at which the the central bank lends to the
Image Source : PTI

The repo rate, at which the the central bank lends to the system, will come down to 5.75 per cent after the cut.

The Reserve Bank of India Thursday lowered the economic growth forecast for the current fiscal to 7 per cent due to slowdown in domestic activities and escalation in global trade war.

In the April monetary policy, the growth of Gross Domestic Product (GDP) for 2019-20 was projected at 7.2 per cent - in the range of 6.8-7.1 per cent for the first half of the fiscal and 7.3-7.4 per cent for the second part - with risks evenly balanced. 

Data for January-March quarter: 2018-19 indicate that domestic investment activity has weakened and overall demand has been weighed down partly by slowing exports, the RBI said after the meeting of the Monetary Policy Committee (MPC), which decides on key policy rates. 

Weak global demand due to escalation in trade wars may further impact India's exports and investment activity, it added. 

Further, private consumption, especially in rural areas, has weakened in recent months. 

However, on the positive side, political stability, high capacity utilisation, the uptick in business expectations in the second quarter, buoyant stock market conditions and higher financial flows to the commercial sector augur well for investment activity, the RBI added. 

Taking into consideration these factors and the impact of recent policy rate cuts, "GDP growth for 2019-20 is revised downwards from 7.2 per cent in the April policy to 7.0 per cent – in the range of 6.4-6.7 per cent for H1:2019-20 and 7.2-7.5 per cent for H2 – with risks evenly balanced", said the central bank.

 
India's exports were unable to sustain the growth of 11.8 per cent observed in March 2019 and grew by 0.6 per cent in April 2019 dragged down by engineering goods, gems and jewellery, and leather products. Tariff wars between the US and China has impacted global trade and and financial markets.

As per the Central Statistics Office (CSO), India's GDP slowed to a five-year low of 5.8 per cent in January-March quarter of 2018-19. The annual growth during the last fiscal at 6.8 per cent too was at a five year low. 

The RBI has also decided to set up a committee involving all stakeholders, under the chairmanship of CEO Indian Banks’ Association (IBA), to examine the entire gamut of ATM charges and fees. The committee will submit its recommendations within two months of its first meeting.

Charges on RTGS/NEFT transactions removed

The RBI further said it had done away with charges on fund transfers through RTGS and NEFT routes to boost digital transactions and asked banks to pass on the benefits to customers.

The Real Time Gross Settlement System (RTGS) is meant for large-value instantaneous fund transfers while the National Electronic Funds Transfer (NEFT) System is used for fund transfers up to Rs 2 lakh.

Country's largest bank SBI charges between Re 1 and Rs 5 for transactions through NEFT and between Rs 5 and Rs 50 for RTGS route.

In its statement on developmental and regulatory policies after the Monetary Policy Committee's meeting, the RBI said it levies minimum charges on banks for transactions routed through RTGS and NEFT system for other fund transfers.

Banks, in turn, levy charges on their customers.

In order to provide an impetus to digital funds movement, it has been decided to do away with the charges levied by the RBI for transactions processed in the RTGS and NEFT systems, it said.

RBI cuts interest rates for third time this year

The RBI cut its repo rate by 0.25 per cent Thursday and said its future monetary policy stance would be more accommodative.

Amid concerns of a slow down in the economy, the central bank lowered its gross domestic product (GDP) forecast to 7 per cent for the current fiscal from 7.2 per cent projected earlier.

The repo rate, at which the the central bank lends to the system, will come down to 5.75 per cent after the cut.

While marginally increasing its inflation projection to 3-3.1 per cent for the first half of the fiscal year 2019-20, which is within the comfort range of 2-6 per cent set by the government, RBI cut the GDP growth targets sharply to 7 per cent for FY20 on weak global scenario and dip in private consumption.

Here are the decisions taken:

  • RBI cuts repo rate by 25 basis points, now at 5.75% from 6%. Reverse repo rate and bank rate adjusted at 5.50 and 6.0 per cent respectively
  • GDP projection adjusted to 7% from 7.2% in earlier projection
  • RBI raises inflation projection to 3-3.1% for April-September

 

(With inputs from agencies)

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