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Worst over: RBI sees silver lining in economic growth

nnapurna Singh
Last Updated : 10 October 2020, 01:20 IST
Last Updated : 10 October 2020, 01:20 IST
Last Updated : 10 October 2020, 01:20 IST
Last Updated : 10 October 2020, 01:20 IST

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The worst is possibly over for India’s Covid-19-hit economy, which will get back to growth in the January-March quarter of the current financial year, RBI Governor Shaktikanta Das suggested on Friday, unveiling a slew of measures to boost economic activity and make certain loans cheaper without cutting the key interest rate.

The RBI projected a 0.5% growth in the economy in the January-March quarter of 2020-21, from nearly 24% contraction in the April-June quarter.

“Today, there is a turn in the wind which suggests that it is not imprudent to dream of a brighter tomorrow even in the bleakest of times. By all indications, the deep contractions of Q1 2020-21 (April-June) are behind us; silver linings are visible in the flattening of the active caseload curve across the country,” Das assured and said that barring the risk of a second wave of infections, the economy was poised to recover.

The central bank, however, forecasts a 9.5% plunge in the economy in 2020-21.

A 9.5% contraction will rewind the economy by three years. Credit: DH
A 9.5% contraction will rewind the economy by three years. Credit: DH

This is the first official forecast since the pandemic hit the country earlier this year. The RBI’s forecast is in line with other global institutions and brokerages.

Constrained by an elevated inflation print, the Monetary Policy Committee (MPC) of the RBI left the key policy interest (repo) rate unchanged at 4%.

Repo rate is the rate at which the central bank lends money to commercial banks in the event of any shortfall of funds. It is used by monetary authorities to control inflation.

For nearly one year, the consumer price inflation is above the RBI’s target of 6%, but Das expected it would come down to 4% by January-March.

Without lowering the interest rate, the RBI rejigged home loan rules, making new loans sanctioned up to March 31, 2022, cheaper. This measure is expected to give relief to big-ticket loans of above Rs 75 lakh, the present share of which is around 12%-15% of the total housing loan portfolio, where the risk weight is higher.

“Assuming a growth of 20% for the next 18 months, this could reduce the capital requirement of around Rs 500 crore, which could enable banks to ease rates to boost demand,” SBI chief economist Soumya Kanti Ghosh said.

The RBI governor also ensured that the Centre’s enormous market borrowing plans to support growth measures sail through smoothly by agreeing to buy more of the central government’s debt, and in a first, also offered to buy the state governments' debt.

The move will help states complete their borrowings for GST compensation losses at affordable rates. States have already borrowed Rs 3.75 lakh crore so far this financial year compared to Rs 2.43 lakh crore during the same period last year.

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Published 09 October 2020, 19:49 IST

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