Sector-specific upticks far from gaining economy-wide traction: RBI MPC

Economic activity remains weak and high frequency indicators do not point to "bottoming out" of the downturn, the RBI Monetary Policy Committee noted while keeping the key interest rate unchanged earlier this month.

According to the minutes of the MPC released by the central bank on Thursday, member and RBI Deputy Governor Michael Debabrata Patra observed that economic activity remains weak.

"... there are indications of the momentum of growth stabilising, with sector-specific upticks underlying this guarded optimism, but they are far from gaining economy-wide traction. In some sectors, the slowdown is deep, and activity is stalled by sizable slack in demand.

"High frequency indicators are not offering definitive evidence yet that the downturn is bottoming out," he said during the meeting of the MPC that concluded on February 6.

RBI Governor Shaktikanta Das, who heads the six-member panel, said "some green shoots are, however, visible".

India's economic growth is estimated to have slowed down to 11-year low of 5 per cent during the current financial year ending March 2020.

High frequency indicators like automobile sales and capital goods output are moderating since last several months.

Das said the Union Budget has sought to provide counter-cyclical support to the economy while broadly adhering to fiscal prudence.

"Monetary transmission and bank credit flows have improved, but they need to become stronger," he said.

The Governor further noted that while demand conditions remain weak, there is uncertainty about the likely behaviour of inflation excluding food and fuel, given the recent cost push shocks, especially of mobile charges, prices of automobiles and essential medicines.

"Overall, the path of headline inflation is expected to moderate, but given the prevailing uncertainty, it is prudent to await more clarity based on incoming data," said Das, who along with the other five members voted for status-quo in the repo rate.

Patra also said the Union Budget presented by Finance Minister Nirmala Sitharaman to Parliament on February 1 has proposed several initiatives to revitalise the economy within the envelope of pragmatic fiscal prudence.

These are significant positives for the medium-term growth and stability outlook. Monetary policy will complement the fiscal impulse and boost it going forward, said the Deputy Governor in charge monetary policy department of the RBI.