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9.5% contraction with further downside risk: RBI's first FY21 GDP estimate

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The Gross Domestic Product (GDP) is expected to contract by 9.5 percent  in FY21, with risks to the downside, Reserve Bank of India (RBI) governor Shaktikanta Das said on Friday. 

9.5% contraction with further downside risk: RBI's first FY21 GDP estimate
The Gross Domestic Product (GDP) is expected to contract by 9.5 percent in FY21, with risks to the downside, Reserve Bank of India (RBI) Governor Shaktikanta Das said while announcing the decisions taken by the central bank’s Monetary Policy Committee (MPC).
GDP contracted 23.9 percent in the first quarter of the fiscal, as per the estimates of the Central Statistics Office (CSO).
In a statement after the meeting of the Monetary Policy Committee, RBI Governor Shaktikanta Das said the Indian economy is entering into a decisive phase in the fight against coronavirus.
"The contraction in economic growth witnessed in the April-June quarter of the fiscal is behind us and silver linings are visible," Das said.
According to him, inflation too is likely to ease to the target level in the fourth quarter of 2020-21. The retail inflation (CPI), which the RBI factors in its monetary policy, has remained above 6 percent in recent months. The government has tasked RBI to keep the inflation at 4 percent, with a margin of 2 percent on either side.
Das also said growth is likely to pick up in the second half of the fiscal and enter into the positive zone in the January-March quarter.
On this, Suman Chowdhury, Acuite Ratings & Research Ltd said, "Although RBI has highlighted some of the emerging green shoots in the economic landscape including a record agricultural output in the current Kharif season, it has also for the first time in the current year projected a GDP contraction of 9.5 percent. In the context of increased concerns on higher bond yields and higher government borrowings, RBI has given out a strong message that it will manage yields in an aggressive manner through larger OMOs which will also cover SDLs. This along with an expectation of moderation in inflation over the next few months is expected to keep 10 years gsec yields at sub 6 percent levels and also facilitate higher borrowings by the states in the near term".
Meanwhile, RBI kept the benchmark repurchase (repo) rate unchanged at 4 percent. Consequently, the reverse repo rate will also continue to earn 3.35 percent for banks for their deposits kept with RBI.
Das said MPC voted for keeping the interest rate unchanged and continued with its accommodative stance to support growth.
RBI had last revised its policy rate on May 22, in an off-policy cycle to perk up demand by cutting interest rate to a historic low. This is the maiden meeting of the new members who were appointed just a day before the meeting for a term of four years.
(With inputs from PTI)
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