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Intensity, duration of Covid-19 to determine impact on economy — RBI

By PTI Updated: Mar 27, 2020 3:55 pm

Mumbai, March 27 (PTI): The RBI on Friday said the impact of coronavirus outbreak on the economy will depend on the intensity, spread and duration of the deadly virus even as the central bank refrained from projecting any numbers for growth and inflation amid the widespread uncertainty.

While announcing the seventh bi-monthly Monetary Policy statement for 2019-20, RBI Governor Shaktikanta Das said that in view of the impact of coronavirus pandemic, the growth projections for 4.7 per cent for fourth quarter of 2019-20 and 5 per cent for the full fiscal are “now at risk”.

Announcing the decisions of the Monetary Policy Committee (MPC), Das said that no projection for growth and inflation was being given in view of the uncertainty created by outbreak of the deadly virus.

On the global economy, the governor said that slowdown could deepen, impacting the growth prospects everywhere in the world.

As regards India, he said, “Growth and inflation would be contingent on intensity, spread and duration of Covid-19”.

The Reserve Bank of India in its monetary policy usually provides projections for growth and inflation.

High frequency indicators suggest that private consumption expenditure has been hit the hardest, even as gross fixed capital formation has been in contraction since Q2:2019-20. On the supply side, the outlook for agriculture and allied activities appears to be the only silver lining, with foodgrains output at 292 million tonnes, 2.4 per cent higher than a year ago, the governor said.

“A pick-up in manufacturing and electricity generation pulled industrial production into positive territory in January 2020 after intermittent contraction …however, more data will need to be watched to assess whether the recent uptick will endure in the face of Covid-19,” Das said.

Referring that anecdotal evidence suggests that several services such as trade, tourism, airlines, hospitality and construction have been further adversely impacted by the pandemic, he said dislocations in casual and contract labour would result in losses of activity in other sectors as well.

Das said price pressures remain firm across protein-rich items, edible oils and pulses, “but the shock to demand from Covid-19 may weaken them going forward”.

“Looking ahead, food prices may soften even further under the beneficial effects of the record foodgrains and horticulture production, at least till the onset of the usual summer uptick. Furthermore, the collapse in crude prices should work towards easing both fuel and core inflation pressures, depending on the level of the pass-through to retail prices.

“As a consequence of Covid-19, aggregate demand may weaken and ease core inflation further,” Das said.

Heightened volatility in financial markets could also have a bearing on inflation, he added.

By PTI Updated: Mar 27, 2020 3:55:33 pm