RBI holds GDP growth outlook at 9.5% for FY22, expects economy to grow at 17.2% in first quarter of next fiscal

RBI stated that the spurt in contact-intensive activities and pent-up demand will continue to bolster urban demand.

December 08, 2021 12:49 IST | India Infoline News Service
gross domestic product
The Reserve Bank of India (RBI) maintained its target for India's gross domestic products (GDP) growth for the current fiscal during the fifth bi-monthly monetary policy announcement for FY22. Notably, RBI expects double-digit growth in the economy during the first quarter of the next fiscal.

Today, in its monetary policy statement, RBI said that the recovery in domestic economic activity is turning increasingly broad-based, with the expanding vaccination coverage, a slump in fresh COVID-19 cases and rapid normalisation of mobility. Rural demand is expected to remain resilient.

Further, RBI stated that the spurt in contact-intensive activities and pent-up demand will continue to bolster urban demand. The government’s infrastructure push, the widening of the performance-linked incentive scheme, structural reforms, recovering capacity utilisation and benign liquidity and financial conditions provide conducive conditions for private investment demand. The Reserve Bank’s surveys point to improving business outlook and consumer confidence.

On the other hand, RBI highlighted that volatile commodity prices, persisting global supply disruptions, new mutations of the virus and financial market volatility pose downside risks to the outlook.

Taking into consideration the above factors and assuming no resurgence in COVID-19 infections in India, RBI said that the projection for real GDP growth is retained at 9.5% in 2021-22 consisting of 6.6% in Q3; and 6% in Q4:2021-22. Real GDP growth is projected at 17.2% for Q1:2022-23 and at 7.8% for Q2.

RBI governor Shaktikanta Das said that the MPC regarded the accentuation of headwinds emanating from global developments as the main risk to the domestic outlook, which is now somewhat clouded by the Omicron variant of COVID-19.

He said that "the recovery that had been interrupted by the second wave of the pandemic is regaining traction, but it is not yet strong enough to be self-sustaining and durable. This underscores the vital importance of continued policy support."

"Downside risks to the outlook have risen with the emergence of Omicron and renewed surges of COVID-19 infections in a number of countries. Besides, notwithstanding some recent corrections, headwinds continue to be posed by elevated international energy and commodity prices, potential volatility in global financial markets due to a faster normalisation of monetary policy in advanced economies, and prolonged global supply bottlenecks," Das said.

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4%.

Likewise, the reverse repo rate under the LAF remains unchanged at 3.35% and the marginal standing facility (MSF) rate and the Bank Rate at 4.25%.

The MPC also decided to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.

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