RBI monetary policy: Central bank lowers economic growth forecast to 7% for current fiscal

Mumbai: The Reserve Bank of India (RBI) on Thursday lowered the economic growth forecast for the current fiscal to 7 percent due to slowdown in domestic activities and escalation in a global trade war. In the April monetary policy, the growth of Gross Domestic Product (GDP) for 2019-20 was projected at 7.2 percent - in the range of 6.8-7.1 percent for the first half of the fiscal and 7.3-7.4 percent 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. [caption id=“attachment_4317853” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] Weak global demand due to an 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 percent in the April policy to 7.0 percent – in the range of 6.4-6.7 percent for H1:2019-20 and 7.2-7.5 percent for H2 – with risks evenly balanced”, said the central bank. India’s exports were unable to sustain the growth of 11.8 percent observed in March 2019 and grew by 0.6 percent 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 percent in the January-March quarter of 2018-19. The annual growth during the last fiscal at 6.8 percent too was at a five year low.