RBI

India's GDP Expected to Shrink 9.5% for FY21, But Silver Linings Already Visible: RBI

RBI governor Shaktikanta Das at the central bank's MPC meeting announced a range of measures to support the economy in emerging from the impact of the Covid-19 pandemic
India's GDP Expected to Shrink 9.5% for FY21, But Silver Linings Already Visible: RBI
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The Reserve Bank of India Governor Shaktikanta Das on Friday said that India’s GDP is expected to shrink 9.5 per cent for FY2021.

However, a faster and stronger rebound thereafter is expected if the current momentum of gains continue, he added while announcing the monitory policy committee’s (MPC’s) policy decision.

For this meeting, three new economists—Ashima Goyal, Jayant Verma and Shashanka Bhide—were appointed, which delayed the meeting that was originally slated for September 29 to October 1.

In a note of optimism, Das said the deep contractions of Q1 of this year are behind us and some silver linings are already visible. He quoted uptick in manufacturing sector and energy consumption to support his growth projections. “The manufacturing purchasing managers’ index (PMI) for September 2020 rose to 56.8, its highest mark since January 2012, supported by acceleration in new orders and production. The services PMI for September at 49.8 remained in contraction but has risen from 41.8 in August,” he noted while adding that India stands fast to renew its tryst with its pre-COVID growth trajectory.

Also Read: India GDP Records Worst Historic Contraction of 23.9% in April-June Quarter

Further, Das announced a range of measures to support the economy emerge from the impact of the Covid-19 pandemic. These measures are intended to enhance liquidity in the financial markets, improve credit flow, boost exports and facilitate ease of doing business by upgrading payment system services.

  • Ontap targeted long term repo operation (TLTRO) for INR 1 lakh crore at the current policy repo rate of 4 per cent till March 2021.
  • Open market operations (OMO) worth INR 20,000 crore will be conducted next week.
  • The maximum retail exposure to one entity of INR 5 crore has been increased to INR 7.5 crore.
  • Realtime gross settlement (RTGS) will be made available 24x7x365 from December.
  •  Risk weightage on home loans has been rationalised, meaning all new housing loans risk will be linked only to loan to value.

 

Commenting on the impact of these measures, Naveen Kulkarni, Chief Investment Officer, Axis Securities said “On-tap TLTROs and OMO purchases lowering bond yields will ease liquidity. Aligning risk-weights for individual housing loans to Loan to Value (LTVs) will help home lenders, in turn, also driving demand for the stressed real-estate sector.”

The central bank has kept its repo rate unchanged at 4 per cent this time as well. It also maintained an accommodative monetary policy stance in view of the Indian economy entering a decisive phase in the fight against Covid-19.

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