"The Economic Survey forecast the growth rate in the range of 6-6.5 percent, and the RBI also expects the GDP growth rate at 6 percent for FY21. Though, some green shots are visible in the economy, it is too early to say that the economy has entered the revival path," Deepthi Mary Mathew, Economist at Geojit Financial Services told Moneycontrol's Sunil Shankar Matkar in an interview.
Q: What are your thoughts on the RBI monetary policy and considering inflation, when would there be a further rate cut?
A. It was an expected move, as the inflation rate breached the upper band of 6 percent. By maintaining the accommodative stance, there is room for rate cuts once the inflation falls back to the comfortable level. In the present scenario, rate cuts are not expected from the next two MPC meetings.
Q: Will RBI's measures for realty (no NPA if projects delayed by a year), housing, auto, MSMEs and NBFCs improve credit growth?
A. RBI has acted in the right direction as large number of projects got delayed due to the slowdown in the economy. In the case of banks, the rising NPA and Asset Quality Review (AQR) had made them the risk averse. However, what needs to be looked into is whether this move will lead to any fresh credit growth, as there is a need to improve the overall sentiments in the economy.
Q: Do you agree with RBI's forecast on inflation for all periods mentioned in the policy statement?
A. The rising inflation rate is mainly contributed by the rise in food prices and it is expected to subside in the coming months. Rabi sowing is also looking favorable. RBI projections have factored in all these elements. However, it needs to be stressed that inflation in India is mainly due to supply-side factors. An unfavorable monsoon or geopolitical tension can turn things in the opposite direction and the central bank will have a limited role to play.
Q: Is it the coordinated response to the Union Budget, by announcing several measures?
A. It could be said that RBI announcements cheered the market more than the Budget. As there was no room for the RBI to cut the rates, the central bank resorted to other measures including extension of restructuring for MSME's and incentivising banks to lend to productive sectors, to lift the economy from the current slowdown. In this background, it is an extension of announcements that were made in the Budget.
Q: Will it be real growth, if we achieve the 6 percent GDP growth rate forecast by RBI for FY21, and what about output gap which remained negative?
A. The Economic Survey forecast the growth rate in the range of 6-6.5 percent and the RBI also expects the GDP growth rate at 6 percent for FY21. Though, some green shots are visible in the economy, it is too early to say that the economy has entered the revival path. There is a need to monitor the high-frequency indicators in the coming months to understand where the economy is heading to. MPC has observed that the economy is still weak with negative output gap. In such a scenario, and considering the nature of the slowdown, it will take time for the economy to strike a GDP growth rate of 6 percent. The GDP growth rate for FY21 is expected to stay below 6 percent.
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