RBI cuts growth forecast to 6.6 per cent, revises inflation estimate to 4.8 per cent for FY25
Terming the growth much lower-than-anticipated, RBI Governor Shaktikanta Das exuded confidence that high-frequency indicators available so far suggest that the slowdown in domestic economic activity bottomed out in Q2:2024-25.
The Reserve Bank of India (RBI) on Friday slashed its growth projection for the current fiscal year 2024-25 to 6.6 per cent from its earlier estimate of 7.2 per cent, citing a slowdown in economic activity and persistent high food prices. Inflation projections have also been raised to 4.8 per cent. India's GDP growth slowed to a seven-quarter low of 5.4 per cent in the July-September quarter, falling short of the RBI's earlier estimate of 7 per cent. RBI Governor Shaktikanta Das described this slowdown as "much lower than anticipated" but expressed optimism about recovery. High-frequency indicators suggest that domestic economic activity hit its low point in the second quarter and has since rebounded, driven by strong festive demand and improvements in rural activities.
Agricultural growth is supported by healthy kharif crop production, higher reservoir levels and better rabi sowing, he said, adding that industrial activity is expected to normalise and recover from the lows of the previous quarter.
"The end of the monsoon season and the expected pick-up in government capital expenditure may provide some impetus to cement and iron and steel sectors. Mining and electricity are also expected to normalise post the monsoon-related disruptions," Das said while announcing the outcome of the fifth bi-monthly Monetary Policy Committee meeting of this fiscal year.
RBI Governor on inflation
On the inflation front, Das said, it increased sharply in September and October led by an unanticipated increase in food prices. "Core inflation, though at subdued levels, also registered a pick-up in October. uel group remained in deflation for the 14th consecutive month in October. In the near term, despite some softening, lingering food price pressures are likely to keep headline inflation elevated in Q3," he said. Going ahead, he said, a good rabi season would be critical to the softening of the food inflation pressures.
RBI cuts CRR to 4 per cent
Meanwhile, to ease the potential liquidity stress, the Reserve Bank also slashed the Cash Reserve Ratio (CRR) by 50 basis points to 4 per cent, a move that would unlock Rs 1.16 lakh crore bank funds. Earlier on May 4, 2022, the central bank had raised CRR to 4.5 per cent from 4 per cent in an off-cycle Monetary Policy Committee (MPC) meeting, with effect from May 21 of the same year. To ease the potential liquidity stress, it has now been decided to reduce CRR of all banks to 4 per cent of net demand and time liabilities (NDTL) in two equal tranches of 25 basis points, each with effect from the fortnight beginning December 14, 2024 and December 28, 2024, RBI Governor Shaktikanta Das said.
(With PTI inputs)
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