RBI cuts FY17 GDP growth target to 7.1 pct on demonetisation impact
New Delhi [India], Dec 7 (ANI): The Reserve Bank of India on Wednesday trimmed the GDP growth forecast for the current fiscal sharply to 7.1 percent from 7.6 percent target earlier, citing demonetisation as the main reason.
The decision is sharper than the 200-300 basis points fall that most economists and brokerages had been predicting.
The central bank also kept benchmark rates unchanged, contrary to market expectations that the repo rate would be cut by 25 basis points.
"The outlook for GVA (gross value added) growth for 2016-17 has turned uncertain after the unexpected loss of momentum by 50 basis points in Q2 and the effects of the withdrawal of SBNs (specified bank notes) which are still playing out," the RBI policy statement said.
The central bank sees near term downside risks travelling through two major channels, which is disruptions in economic activity in cash-intensive sectors such as retail trade, hotels and restaurants and transportation, and in the unorganized sector, and secondly, the contraction in aggregate demand because of the 'wealth effect'.
However, the RBI feels the impact of the first channel should ease as new currency notes come into circulation and greater usage of non-cash based payment instruments in the economy.
The impact of the second channel wealth effect is likely to be limited, the RBI feels. (ANI)