MUMBAI: Reserve Bank of India governor Shaktikanta Das said on Monday that the Indian economy has exhibited stronger than expected pick-up and the growth outlook has improved but cautioned over the need to be watchful over downside risks of a fresh surge in infections, the sustainability of demand after festivals and a possible reassessment by markets around vaccine expectations.
The governor's statement comes at a time when forecasters are revising the GDP decline numbers for the second quarter, given the rebound in economic activity.. SBI group chief economist Soumya Kanti Ghosh said in a report that he now expects the economy to shrink by 10.7% in the September quarter, against the earlier forecast of 12.5%. RBI had estimated an 8.6% contraction in the second quarter, which will mean that India slipped into technical recession due to two consecutive quarters of a fall in economic activity.
The government is due to release second quarter GDP numbers on Friday.
At a Foreign Exchange Dealers Association of India event, Das said that after a sharp contraction of 23.9% during the June-quarter, there was “multi-speed normalisation of activity” in the second quarter. “The Indian economy has exhibited stronger than expected pick-up in the momentum of recovery. The global economy has also witnessed a stronger than expected rebound in activity in Q3. The IMF has accordingly revised its assessment for global growth in 2020 to a less severe contraction than what was assessed in June 2020,” said Das.
Das said that a key source of resilience for the economy was the comfortable position with regard to the availability of foreign exchange. The country has had surplus current account balances over two quarters and had also seen a resumption of portfolio and foreign direct investment. As a result, India’s forex reserves have hit $572 billion with over $110 billion coming in this year itself.
The governor also assuaged markets of a continued accommodative monetary policy. He reiterated the monetary policy guidance in October which emphasized the need to see through “temporary” inflation pressures and need to maintain an accommodative stance well into the next financial year.
The governor also indicated that there would be more liberation on the capital front. “Capital account convertibility will continue to be approached as a process rather than an event, taking cognizance of prevalent macroeconomic conditions. A long-term vision with short- and medium-term goals is the way ahead,” he said.
The governor said that the Indian Banks Association has been working with market participants to transition from Libor (London inter-bank offered rate) to alternate reference rates. “Achieving a smooth transition from a benchmark entrenched in the financial system will require significant efforts from all stakeholders,” he said. Regulators worldwide are asking banks to move away from Libor as the same was found to be an inaccurate benchmark.
Source:-timesofindia.indiatimes.com