Reserve Bank of India has maintained its growth outlook for the economy, estimating the country’s Gross Domestic Product (GDP) to grow at 7.4 percent in 2018-19.
The MPC noted that GDP growth would range between 7.5 and 7.6 percent in H1 and 7.3 to 7.4 percent in H2. The policy panel said that the GDP growth for Q1 (2019-20) is projected at 7.5 percent.
“The progress of the monsoon so far and a sharper than the usual increase in MSPs of kharif crops are expected to boost rural demand by raising farmers’ income,” the MPC said.
The document states that robust corporate earnings, especially of fast moving consumer goods (FMCG) companies, also reflect buoyant rural demand.
“Investment activity remains firm even as there has been some tightening of financing conditions in the recent period. Increased FDI flows in recent months and continued buoyant domestic capital market conditions bode well for investment activity,” according to the MPC’s statement.
RBI indicated that activity in the manufacturing sector is expected to remain robust in Q2 despite “some moderation in pace.”
However, the central bank warned that rising trade tensions may have an adverse impact on India’s exports. The MPC has stated that export growth picked up in May and June on a year-on-year basis, helped by petroleum products, engineering goods, drugs and pharmaceuticals, and chemicals.
Import growth accelerated largely due to an increase in crude oil prices, it added.
The MPC raised its key repo rate by 25 basis points to 6.50 percent. This is the second consecutive hike in the repo rate. RBI had earlier increased the repo rate by 25 basis points in June, which was the first hike since January 2014.
Repo rate is the rate at which banks borrow from RBI for short-term funding requirements.
In June, the central bank had maintained its growth outlook for the economy, estimating the country’s GDP to grow at 7.4 percent in 2018-2019.