RBI expected to make inflation and growth forecast on 1 October — first time this fiscal

RBI is mandated by law to make its projection every six months. The last projection on growth and inflation was made in February.

Mumbai: The Reserve Bank of India (RBI), which has held back its projection of inflation and growth numbers since its monetary policy review of February, is expected to announce these forecasts during the announcement of the next review scheduled on 1 October.

The six-member monetary policy committee (MPC) — which decides interest rate — will meet from 29 September to 1 October, and the outcome of the review will be announced on the final day.

The announcement is expected because the RBI Act mandates the central bank to publish once in every six months a document called the Monetary Policy Report to explain the sources of inflation, and the inflation forecast for 6-18 months ahead.

Central bank watchers say since the RBI is mandated to make its inflation projection on 1 October, it may also forecast the growth numbers, as is the practice.

Since the monetary policy committee became operational in October of 2016, the RBI has made inflation and growth forecasts in all the policy reviews until February this year.

RBI statements this year

On 27 March, just after the nationwide lockdown was implemented to curb the spread of the novel coronavirus, the RBI announced an unscheduled review of the monetary policy in which the repo rate was reduced by 75 bps.

While announcing the decision, RBI Governor Shaktikanta Das had said projections of growth and inflation would be heavily contingent on the intensity, spread and duration of Covid-19 due to “heightened volatility, unprecedented uncertainty and extremely fluid state of affairs”. “Precisely for these reasons, the MPC refrained from giving out specific growth and inflation numbers,” he had said.

The RBI refrained from giving projections in the next two policy reviews as well — in May and August.

Without giving out projection numbers in August, the RBI had said the MPC expects headline inflation to remain elevated in the second quarter of the ongoing fiscal, but likely to ease in the second half due to favourable base effects.

On growth, the MPC said real GDP growth in the first half of the year is seen in the contraction zone. “For the year 2020-21 as a whole, real GDP growth is also estimated to be negative. An early containment of the COVID-19 pandemic may impart an upside to the outlook,” it said.

The last projection on growth and inflation numbers was made during the February review of the monetary policy.

Consumer price index-based inflation was projected at 6.5 per cent for the fourth quarter of FY20, 5.4-5.0 per cent for the first half of FY21, and 3.2 per cent for the third quarter. Average inflation has stayed above 6 per cent during the March and June quarters, while it clocked 6.93 per cent in July. The August inflation figures are due Monday.

In the February policy, the GDP growth for the country was projected at 6 per cent for the current financial year. GDP growth for the first quarter came out at negative 23.9 per cent, which prompted many analysts to revise projection to around 10 per cent contraction for FY21, from negative 5 per cent predicted earlier.

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