Chart of the Day | SBI leading indicator points to sharp slowdown

Representative image

State Bank of India Group Chief Economic Adviser Soumya Kanti Ghosh says the bank’s composite leading indicator (CLI) is signalling gross value added (GVA) growth of around 6.1 to 6.2 percent for the March 2019 quarter. That would be the lowest GVA growth since the June 2017 quarter. The bank’s economic newsletter says that in February 2019, only a third of the indicators of rural consumption were showing acceleration, while merely a quarter of the indicators of urban consumption indicated an acceleration in growth.

The CLI came in at 96.04 for the March 2019 quarter, the lowest reading since the March 2017 quarter, immediately after demonetisation. As the chart shows, the CLIs closely map GDP growth. What’s more, the CLI for the March 2019 quarter is much lower than it was five years ago, in the March 2014 quarter.

The remedy for the slowdown? Ghosh says he is pencilling in a higher than 25 basis point rate cut by RBI at its next meeting, but rate cuts will help only if there is effective transmission to lower interest rates for borrowers.