The demonetisation decision seems to be stifling growth in the current fiscal as well, with the Reserve Bank of India (RBI) lowering Gross Domestic Product (GDP) growth projection to 7.3% for the current fiscal from the earlier 7.4%.
“With the Central Statistics Office’s (CSO) provisional estimates for 2016-17, the projection of real GVA (gross value added) growth for 2017-18 has accordingly been revised 10 basis points downwards from the April 2017 projection to 7.3%, with risks evenly balanced,” the RBI said.
Tacitly admitting that the decision to implement demonetisation has hit the economy hard and slowed growth, the RBI said that the new data revealed that a slowdown in activity in both industry and services “set in as early as Q1 of 2016-17” and “became pronounced” in the fourth quarter.
The apex bank, however, left lending rates unchanged, citing risks to inflation due to spurt in farm loan waivers by states but raised lending capacity of banks to support economic growth.
Headed by RBI Governor Urjit Patel, the Monetary Policy Committee (MPC) for the fourth straight time kept the repo rate, at which it lends to the banks, unchanged at 6.25%. The reverse repo, at which RBI borrows, will be 6%.
“The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth,” RBI said in its second bi-monthly monetary policy review for 2017-18.
The central bank has however slashed the Statutory Liquidity Ratio (SLR) or the percentage of deposits that banks have to park in government securities, by 0.5% to 20%. The move is expected to raise buoyancy in the loans market as banks would have slightly higher funds for lending.
“The current state of the economy underscores the need to revive private investment, restore banking sector health and remove infrastructural bottlenecks. Monetary policy can play a more effective role only when these factors are in place, it said.
Some important points of the Second Bi-monthly Monetary Policy Statement, 2017-18:
Published: 07 Jun 2017, 9:00 PM IST
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Published: 07 Jun 2017, 9:00 PM IST