Economy to contract at 7.5 per cent for FY21 due to Covid-19 impact: RBI

The Reserve Bank of India revised its forecast of economic growth for the current fiscal year (2020-21) to minus 7.5 per cent compared to its earlier forecast of minus 9.5 per cent

The Reserve Bank of India (RBI) on Friday revised its forecast of economic growth for the current fiscal year (2020-21) to minus 7.5 per cent compared to its earlier forecast of minus 9.5 per cent.

RBI governor Shaktikanta Das said the change in forecast has been prompted by a surge in demand in both rural as well as urban areas.

The second half of the fiscal year is expected to show positive growth despite disruptions caused by coronavirus pandemic, he added.

The RBI kept the policy repo rate at 4 per cent amid persistently high inflation. The consumer price index has been above the tolerance band for seventh straight month in October.

However, Das said that bumper kharif harvest and dipping vegetable prices are likely to soften inflation.

The economy had shrunk 23.9 per cent during the April to June quarter and 7.5 per cent in the July to September quarter due to steep fall in manufacturing, construction and services.

The central bank has slashed the repo rate by 115 basis points since late March to cushion the shock from the COVID-19 crisis and sweeping lockdowns across the country to check its spread.