The dynamic economic upheaval unleashed by Covid-19 pandemic might hinder the Reserve Bank of India (RBI) from giving a pin-pointed growth as well as inflation forecast in the upcoming monetary policy report, experts opined.
The existing legislations mandate the RBI to come out with a growth and inflation forecast twice in an interval of six-months in the monetary policy report.
Expectedly, the report is slated to be issued with the upcoming policy review on October 1. The report was last issued in February.
“Given the continuing uncertainty on the economic revival, it is difficult to say whether RBI will come out with clear forecasts on the GDP print for FY21,” said Suman Chowdhury Chief Analytical Officer at Acuite Ratings and Research.
“It has, however already highlighted the risks of a material contraction in economic output in the previous MPC report. As regards inflation, it is likely to reiterate its expectation of a moderation in the CPI inflation over the next few months due to lesser supply constraints, higher crop output in kharif season and also the favourable base effect kicking in.”
According to Brickwork Ratings said: “With uncertainty regarding the pandemic looming large, the RBI may not provide a GDP forecast for FY21 in the upcoming MPC meeting. As in the previous statements, the RBI may continue to talk about economic contraction without quantifying the magnitude.”
“Given the continued surge in Covid-19 cases in the country’s major hubs, which is hindering the recovery process, we expect the Q2FY21 GDP to shrink by 13.5 per cent.”
In April, the RBI’s Monetary Policy Report said that the global economy may slump into recession in 2020.
The report noted that the the coronavirus pandemic, lockdown and the expected contraction in global output will weigh heavily on the growth outlook. The actual outturn would depend upon the speed with which the outbreak is contained and economic activity returns to normalcy, said the Monetary Policy Report for April 2020.
As per the report, due to the highly fluid circumstances in which incoming data produce shifts in the outlook for growth on a daily basis, forecasts for real GDP growth in India are not provided in the Monetary Policy Report, awaiting a clear fix on the intensity, spread and duration of Covid-19.
It is widely expected that persistently high inflation fanned in part due to supply side disruptions along with seasonal factors will deter the Reserve Bank to administer a dose of lending rate cut during the upcoming monetary policy review.
Notably, the expected move will come at a time when industrial output is at historic low due to the Covid-19 pandemic.
The RBI’s MPC (Monetary Policy Committee) is expected to release its resolution on the monetary policy after their meet on September 29 to October 1, 2020.