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Informist, Friday, Dec. 6, 2024

 

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--RBI cuts FY25 GDP growth forecast to 6.6% from 7.2?rlier 
--RBI Das: Risks to growth forecasts are evenly balanced 
--RBI cuts Oct-Dec GDP growth forecast to 6.8% from 7.4?rlier 
--RBI cuts Jan-Mar GDP growth forecast to 7.2% from 7.4?rlier 
--RBI cuts Apr-Jun GDP growth forecast to 6.9% from 7.3?rlier 
--RBI pegs FY26 Jul-Sept GDP growth at 7.3% 
--RBI Das: Growth also very important for every segment of econ 
--RBI Das terms recent GDP, CPI prints an aberration 
--RBI Das: MPC took note of recent slowdown in growth 
--RBI Das: MPC assessed growth to be resilient in Oct-Mar 
--RBI Das: Growth outlook needs close monitoring 
--RBI Das: MPC remains committed to restore inflation-growth balance 
--Das:Only durable price stability can give strong foundation to high growth 
--RBI Das: Global econ showed unusual resilience in 2024 
--RBI Das: Outlook for global growth clouded by protectionst tendencies 
--RBI Das: Rising protectionist tendencies may weigh on global growth 
--RBI Das: Jul-Sept GDP growth much lower than anticipated 
--RBI Das: Jul-Sept GDP growth slowdown due to subdued mfg co performance 
--RBI Das: Jul-Sept GDP growth slowdown due to subdued mining output 
--RBI Das: Weakness in mfg sector in Jul-Sept was not broad based 
--RBI Das: Jul-Sept GDP growth slowdown due to subdued electricity demand 
--RBI Das: Slowdown in econ activity bottomed out in Jul-Sept 
--RBI Das: Data shows econ activity bounced back since Jul-Sept 
--RBI Das: Farm growth supported by healthy kharif output 
--RBI Das: Farm growth supported by high reservoir levels 
--RBI Das: Mining, electricity to recover after monsoon dip 
--RBI Das: Mining, electricity sectors to recover after monsoon dip 
--RBI Das: Govt capex likely to pick up 
--RBI Das: Nov mfg PMI remained elevated, PMI services steady 
--RBI Das: Svc sector continues to grow at strong pace 
--RBI:Rural demand is trending upwards, urban demand showing some moderation 
--RBI Das: Govt consumption improving, invest expected to improve 
--RBI Das: Growth outlook needs to be closely monitored 
--RBI Das: Need to wait for, montior incoming data 
--RBI Das:Central bk's job is anchor of stability, confidence for high growth 
--RBI Das: Inflation on upside since Oct Policy, while growth moderated 
--RBI Das: Have traversed one of the most difficult periods in India econ 
--RBI Das: India econ emerged stronger after period of trials 
--RBI Das: MPC remains committed to restore balance between inflation, growth 
--RBI Das: MPC action is about dissection of inflation-growth dynamics 
--RBI Das: Growth in H2 looks better than H1 of FY25 
--RBI Das: Monsoon affected mining, electricity demand in Jul-Sept 
--RBI Das: Have to appropriately time actions 
--RBI Patra: Investment main problem in demand side 
--RBI Patra: Pvt cos don't want to invest as demand seen moderate 
--RBI Patra: Underlying slowdown in growth due to inflation 
--RBI Das: Our effort is to follow legal mandate in letter, spirit 
--RBI Das: No room for knee-jerk reaction 
--RBI Das: Whatever action we have to take, will have to be well-timed 
--RBI Das: Action we take will depend on situation that emerges 
--RBI Das: Farm activity picked up, needs cash 
--RBI Das: Effort is to restore growth-inflation balance 
--RBI Das: Dynamics of growth-inflation somewhat unsettled 
--RBI Patra on Jul-Sept GDP: Not apt to make judgement on one data point

 

NEW DELHI - The Reserve Bank of India Friday lowered its GDP growth forecast for 2024-25 (Apr-Mar) by 60 basis points to 6.6%. The central bank was widely expected to lower its full year growth projection after Jul-Sept GDP growth fell to a seven-quarter low of 5.4%, which was 160 basis points lower than the RBI's projection of 7.0%.

 

"The MPC noted that the near-term inflation and growth outcomes in India have turned somewhat adverse since the October policy," the Monetary Policy Statement said. "Going forward, however, economic activity is set to improve along with rising business and consumer sentiment, as reflected in the Reserve Bank's surveys," the statement said. The MPC Friday left the repo rate unchanged at 6.50%, and retained its "neutral" policy stance.

 

The RBI also lowered its growth forecasts for Oct-Dec, Jan-Mar, and Apr-Jun. The GDP is now seen expanding 6.8% in Oct-Dec as compared to the previous estimate of 7.4%, and 7.2% in Jan-Mar as against the earlier view of 7.4%. The central bank lowered the Apr-Jun GDP growth forecast by 40 bps to 6.9%. The RBI pegged GDP growth for Jul-Sept FY26 at 7.3%.

 

In his statement, RBI Governor Shaktikanta Das termed the recent growth print as an aberration, saying that the Indian economy "continues its journey on a sustained and balanced path towards progress". The MPC took note of the recent slowdown in growth, and accordingly lowered the FY25 growth forecast, Das said. 

 

The Indian economy expanded much lower than anticipated in Jul-Sept because of substantial deceleration in industrial growth. Industrial growth fell in Jul-Sept because of subdued performance of manufacturing companies, contraction in mining activity, and lower electricity demand, Das said. However, the weakness in the manufacturing sector was not broad based and limited to sectors such as petroleum products, iron and steel, and cement, the governor said, adding that the monsoon affected mining and electricity demand in Jul-Sept. 

 

"Going forward, high frequency indicators available so far suggest that the slowdown in domestic economic activity bottomed out in Q2:2024-25 (Jul-Sept), and has since recovered, aided by strong festive demand and pick up in rural activities," Das said. The MPC termed the growth outlook for Oct-Mar and FY26 as resilient even as it warrants close monitoring. 

 

Agricultural growth remains supported by healthy kharif production, high reservoir levels, and better rabi sowing, Das said. Industrial activity is also expected to normalise and recover from the lows of Jul-Sept, he added.

 

After the end of the monsoon season, mining and electricity are expected to normalise, while a pickup in government capital expenditure may provide some impetus to the cement and iron and steel sectors, Das said. The governor termed the November manufacturing purchasing managers’ index print of 56.5 as "elevated". Supply chain pressures have also eased in October and November, while the services sector grows at a strong pace, Das said. 

 

On the demand side, rural demand is trending upwards, urban demand is showing some moderation, Das said. Government consumption is improving and investment activity is also expected to improve, he added. Considering all these factors, the RBI lowered its FY25 growth forecast to 6.6% from 7.2?rlier.

 

At a press conference after the announcement of the MPC meeting outcome, RBI Deputy Governor Michael Patra said that the underlying slowdown in growth is because of inflation. "In manufacturing, the biggest issue is the slump in sales growth, that is reflecting inflation hitting urban consumer," Patra said.

 

"So when sales growth is down, companies do not want to invest in new assets because they see demand as moderate, and it can be met from existing capacity. Since they don't want to engage in new capacity creation, investment is down," the deputy governor said. Patra also said that it would not be appropriate to judge the trend growth on the basis of just one data point, referring to the Jul-Sept growth print.

 

Das said that the MPC remains committed to restore inflation-growth balance, and only durable price stability can give strong foundation to high growth. "At present, it is necessary to draw on the flexibility provided by the neutral stance to wait for and monitor the incoming data for confirmation of the decline in inflation," the governor said in his statement. The gains on disinflation achieved so far, notwithstanding the recent upticks, need to be preserved, he added.

 

When asked why the MPC left the repo rate unchanged when the cut in growth projection is sharper than the increase in inflation projection for FY25, Das said the committee's effort is to always follow the legal mandate on growth and inflation in "letter and spirit". "In the life of central bank, there is no room for knee-jerk reaction, we need more credible evidence," Das said.

 

"We need more evidence with regard to how the outlook is likely to be. And based on that assessment, the effort is always to take action in time. Whatever action we take, it has to be well-timed," the governor said. "Our effort has always been to remain in line with the curve, never fall behind the curve and I think we are maintaining that trend," Das added.

 

In the last few years, the Indian economy has traversed one of its most difficult periods ever. Indian economy has not just navigated this period of trials successfully but also emerged stronger, Das said. 

 

On the global economy, the governor said that it has showed unusual resilience in 2024. However, the outlook for global growth is clouded by protectionist tendencies, Das said. Rising protectionist tendencies may undermine global growth and push inflation higher, Das said.  End

 

Reported by Shubham Rana

Edited by Vandana Hingorani

 

 

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