RBI says India’s GDP to grow at 7.4% in FY19; revises inflation projections

The Reserve Bank of India (RBI) on 29 August 2018 that India’s GDP growth is projected at 7.4% in the financial year 2018-19, reiterating its April forecast, while revising the projected CPI inflation to 4.8-4.9% in H1 and 4.7% in H2. As India showcased a robust growth of 7.7% in the fourth quarter of the financial year 2017-18.

The RBI voted unanimously to hike repo rate by 25 basis points, in a first interest rate hike in four-and-a-half years, citing a major upside risk to the baseline inflation on the back of high crude oil price. On inflation, the central bank said that the crude oil prices are posing “considerable uncertainty” to the inflation outlook. However, there are several other risks as well.

The global financial market developments, a significant rise in households’ inflation expectations and staggered impact of HRA revisions are other factors that may push headline inflation up. A normal monsoon, as predicted by the IMD, may help keep food inflation benign. The RBI said that assess the impact of revised Minimum Support Price (MSP) was not possible at this stage.

However, the central bank said that the manufacturing activity may moderate marginally in the second half of the financial year “on account of deterioration in the overall business situation and order book”. That consumption, both rural and urban, remains healthy and is expected to strengthen further.

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