Mumbai : The Reserve Bank of India said economic growth in the current fiscal will accelerate to 7.4 per cent compared to 6.7 per cent in 2016-17 on the back of several favourable domestic factors and improvement in global environment.
In its first bi-monthly monetary policy of 2017-18, it said several indicators are pointing to a modest improvement in the macroeconomic outlook.
These include record production of foodgrains and pulses and recovery in industrial output on the back of turnaround in the manufacturing sector. Also, activity in the services sector appears to be improving as the constraining effect of demonetisation wears off, reports PTI.
“GVA (Gross Value Addition) growth is projected to strengthen to 7.4 per cent in 2017-18 from 6.7 per cent in 2016-17, with risks evenly balanced,” the policy statement said. It had made a similar projection in the previous policy announcement. Several favourable domestic factors are expected to drive this acceleration. “First, the pace of remonetisation will continue to trigger a rebound in discretionary consumer spending.
Activity in cash-intensive retail trade, hotels and restaurants, transportation and unorganised segments has largely been restored,” it said.
It further noted that significant improvement in transmission of past policy rate reductions into banks’ lending rates post demonetisation should help encourage both consumption and investment demand of healthy corporations. Various proposals in the Union Budget should stimulate capital expenditure, rural demand, and social and physical infrastructure, all of which will invigorate economic activity, the RBI said.
HIGHLIGHTS
l Policy repo rate unchanged at 6.25%, hikes reverse repoto 6%
l Narrows policy rates corridor due to increased liquidity, post demonetisation
l Pegs GVA growth for current fiscal at 7.4% as against 6.7% last year
l Revises MSF, bank rate to 6.5%
l Retail inflation in first half seen at 4.5%, 5% in secondhalf
l Economic indicators point to modest improvement in microeconomic outlook
l Risk evenly balanced around inflation trajectory; upside risk from uncertainty about monsoon
l Upside risk to inflation from GST, poor monsoon, pay commission award
l Further scope for a more complete transmission of policy rates remains, including for small savings rates
l All six MPC members voted in favour of RBI monetary policy
l The next meeting of the Monetary Policy Committee on June 5 and 6.