Wait till Q4! RBI Governor Das sees light at the end of the tunnel for economy

The Reserve Bank of India (RBI) Governor Shaktikanta Das today projected better days for the economy that saw contraction in the first quarter of 2020-21. While high inflation was a major stumbling block for the monetary policy committee (MPC) to reduce the repo rate, the Governor expects retail inflation or CPI to come closer to the targeted level by the fourth quarter. The RBI Governor said that the mood of the nation has shifted from fear and despair to confidence and hope. "Today, there is a turn in the wind, which suggests that it is not imprudent to dream of a brighter tomorrow even in the bleakest of times," said RBI Governor.

GDP to turn positive by fourth quarter

The RBI's growth projections suggest that GDP will come out of contraction and turn positive by the fourth quarter (Jan-March) of 2020-21. The GDP had contracted by 23 per cent in the first quarter. The RBI estimates the GDP to decline by 9.5 per cent in the current fiscal. "If, however, the current momentum of upturn gains ground, a faster and stronger rebound is eminently feasible," says Governor Das.

Also read: RBI expects GDP growth to contract by 9.5% in FY21

Sectors on the recovery path

Agriculture and allied activities; fast moving consumer goods; two wheelers, passenger vehicles and tractors; drugs and pharmaceuticals; and electricity generation, especially renewables, are some of the sectors that are on a recovery path faster than the others.

Inflation to ease closer to targeted level by fourth quarter

The RBI's projections indicate that inflation would ease closer to the target by the fourth quarter of 2020-21. The current CPI or retail inflation is above 6 per cent. The RBI's monetary policy committee has a mandate to keep inflation at 4 per cent with plus and minus 2 per cent. "Our analysis suggests that supply disruptions and associated margins/mark-ups are the major factors driving up inflation. As supply chains are restored, these wedges should dissipate," says Governor Das. The RBI's calculation suggest that the inflation will remain elevated in the September print, but ease gradually towards the target over the third and fourth quarter.

Also read: HDFC Bank's Deepak Parekh hopeful of positive GDP growth in Q4, says 'worst behind us'

Smooth government borrowings despite higher target

The first half of the current year has seen RBI seamlessly managing the government borrowing programme. "The weighted average cost of borrowings by the central government during the first half of 2020-21 at 5.82 per cent is the lowest in the last 16 years," says Governor Das. The RBI has assured that the borrowing programme of the centre and states for rest of 2020-21 will be completed in a non-disruptive manner without compromising on price and financial stability.

Also read: MPC meet Live Updates: RBI keeps repo rate unchanged at 4%; expects FY21 GDP to shrink 9.5%

Also read: Print money, if needed, to prevent deprivation, help lower rung of pyramid: Anand Mahindra