GDP to contract 7.5% this fiscal, says RBI; keeps key rates unchanged

“The economy is recuperating faster than anticipated,” said the central bank’s governor Shaktikanta Das.

New Delhi: Revising its earlier forecast, the Reserve Bank of India (RBI) on Friday said that the Gross Domestic Product (GDP) is likely to contract 7.5 per cent this fiscal. This is an upgrade from the central bank’s earlier forecast of 9.5 per cent contraction in its October review.

“The economy is recuperating faster than anticipated,” said the central bank’s governor Shaktikanta Das, while announcing the monetary policy committee decision here. He added that the recovery in rural demand is expected to strengthen further while the recovery in urban demand is gaining momentum.

Corporate bond spreads have come down to pre-pandemic levels and will help in economic recovery, Das said. He reiterated that the RBI will use all tools at its disposal to maintain enough liquidity in the financial system.

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Besides, the RBI kept key interest rates steady as widely expected on Friday amid persistently high inflation, and after a better-than-expected reading on economic growth.

The monetary policy committee also decided to retain an accommodative policy stance at least for the current financial year and into the next year to revive growth on a durable basis. The RBI projected inflation at 6.8 per cent for Q3 of this fiscal.

The key lending rate of the RBI or the repo rate was left unchanged at 4 per cent while the reverse repo rate or the key borrowing rate stayed at 3.35 per cent. RBI has so far this year slashed the repo rate by 115 basis points to cushion the shock from the COVID-19 crisis.

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After the rates were announced, Sensex touched an all-time high of 45,033.19 points as of 11.10 am today. The Nifty also touched a fresh all-time high of 13,250.30 points.

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