The Reserve Bank of India (RBI) projected the country’s economic growth rate at 10.5% for the next financial year starting April 1, predicting a rebound following a year of contraction in the wake of the Covid-19 pandemic.
The central bank had estimated the economic growth during the current financial year at -7.5%.
India was the fastest growing major economy prior to the onset of the pandemic early last year, which resulted in the country enforcing the world’s strictest lockdown to protect its 1.3 billion population.
Simultaneously, on Friday, the central bank kept interest rates unchanged to aid the economic recovery. The repo rate, which was slashed by 115 basis points in late March, remained pegged at 4%. At the same time, the reverse repo rate was kept at 3.35%.
“It is our strong conviction, backed by forecast, that in 2021-2022 we will undo the damage inflicted by Covid 19 on the economy,” said Shaktikanta Das, Governor of RBI.
He expressed the hope that the country’s economy would only move upwards, after its capability and endurance had been tested.
The central bank’s optimistic projection further fuelled a sharp stock market rally that was driven by an expansionary budget announced by Finance Minister Nirmala Sitharaman earlier this week.
The BSE Sensex, which had climbed past the 50,000 mark, was trading 0.45% higher at 50,844.45 in the afternoon.
The RBI governor allayed concerns about high retail inflation rate and said that it would come down to 5.2% in the current quarter and further decline to 4.3% by the third quarter of the next fiscal year.
“The centre will be reviewing the inflation-target by March-end,” said Das.
An RBI survey indicated capacity utilisation in the manufacturing sector in the current fiscal year to rise to 63.3% from 47.3% a year ago.
Electricity and energy demand have also picked up towards normalisation to pre-Covid levels.
Das said the growth outlook had improved significantly since the distribution of Covid vaccines, an exercise that started last month.