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Here's what RBI said on inflation, GDP growth

Here's what RBI said on inflation, GDP growth

Here's what RBI said on inflation, GDP growth
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By Aastha Agnihotri  Jun 6, 2018 3:05:20 PM IST (Updated)

The Reserve Bank of India (RBI) on Wednesday raised interest rates for the first time since January 2014 even as the central bank maintained the neutral stance.

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The RBI raised repo rate or the rate at which it lends to commercial banks by 25 basis points to 6.25%. Reverse repo rate was increased to 6% from earlier 5.75%.
A majority of the economists in CNBC-TV18’s monetary policy panel had expected a rate hike looking at the sheer rise in core inflation, i.e. inflation excluding food and fuel.
Let's take a look at the central bank's commentary on inflation, GDP and industrial growth.
GDP growth
The gross domestic product (GDP) rate for fiscal 2019 was retained at 7.4%. GDP growth is projected in the range of 7.5-7.6% for the first half of the current fiscal and between 7.3-7.45 for the second half.
"With improving capacity utilization and credit offtake, investment activity is expected to remain robust even as there has been some tightening of financing conditions in recent months," the policy statement said.
The RBI expects exports to get a thrust from the buoyant global demand and provide needed impetus to investment.
However, the sharp rise in petroleum product prices is likely to impact disposable incomes, the central bank said.
Consumption, both rural and urban, remains healthy and is expected to strengthen further, according to the RBI.
Inflation
The RBI flagged concerns over the volatile crude oil prices and the growing uncertainty to inflation outlook. As per the authority, there are several risks associated with inflation, namely:
  • First, global financial market developments have emerged as another important source of uncertainty.
  • Second, the significant rise in households’ inflation expectations as gathered in the May 2018 round of the Reserve Bank’s survey could feed into wages and input  costs in the coming months. However, the pass-through to output prices remains muted presently.
  • Third, the staggered impact of house rent allowance (HRA) revisions by various state governments may push headline inflation up. While the statistical impact of HRA revisions will be looked through, there is a need to watch out for any second round impact on inflation.
  • Fourth, the impact of the revision in the minimum suppot price formula for kharif crops is not possible to assess at this stage in the absence of adequate details.
  • Fifth, as forecast by the India Meteorological Department, if the monsoon is normal and well-distributed temporally and spatially, it may help keep food inflation benign.
  • The central bank raised consumer price index (CPI) inflation forecast to 4.8-4.9% for the first half while the second half inflation forecast was raised to 4.7%
    Excluding HRA impact, CPI inflation was pegged at 4.6% for the first half and 4.7% for the second half of fiscal 2019.
    Industrial growth
    Industrial growth strengthened, reflecting the robust performance of manufacturing, the RBI said.
    Capacity utilisation by manufacturing firms increased significantly in the fourth quarter as revealed in the latest round of the Reserve Bank’s order books, inventories and capacity utilisation survey (OBICUS).
    As per the early results of the Reserve Bank’s April-June round of the industrial outlook survey (IOS), activity is expected to expand at a lower rate in the first quarter of current fiscal year due to a significant rise in input prices and perceptions of softening domestic and external demand conditions.
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