The global economy is on course this year for its fastest growth in six years as a rebound in trade helps offset a weaker outlook in the United States, the OECD forecast on Wednesday. The global economy is set to grow 3.5 percent this year before nudging up to 3.6 percent in 2018, the Paris-based Organisation for Economic Cooperation and Development said, updating its forecasts in its latest Economic Outlook. That estimate for 2017 was not only a slight improvement from its last estimate in March for 3.3 percent growth, but it would also be the best performance since 2011. Yet despite this brighter outlook, growth would nonetheless fall disappointingly short of rates seen before the 2008-2009 financial crisis, OECD Secretary General Angel Gurria said. “Everything is relative. What I would not like us to do is celebrate the fact that we’re moving from very bad to mediocre,” Gurria told Reuters in an interview. “It doesn’t mean that we have to get used to it or live with it. We have to continue to strive to do better,” he added.
As the RBI left lending rates unchanged, India Inc today expressed disappointment saying the central bank has chosen to remain over-cautious about the inflation outlook. Industry chamber Assocham said the Reserve Bank (RBI) has “disappointed India Inc” by not reducing the policy interest rates, specially when inflation remains quite benign. “It is clear that the RBI has chosen to remain over- cautious about the inflation outlook even when the key data like crude oil, monsoon, inability of the producers to hike prices made a clear-cut case for softening of the interest rates,” it said in a statement. It also said that a large part of the industry is reeling under a heavy debt and the high interest costs are becoming a big drag on the balance sheets. “The deceleration in the growth in the last quarter of 2016-17 also underscores the need for lesser cost of money,” it said. “…you cannot find fault with the RBI when its main mandate has been to keep inflation low, and not growth dynamics. However, even at this point of time, the data itself was so supportive of a rate cut, which did not happen pitifully,” it added.
India’s second quarter growth will be better than its first quarter of 6.1 per cent and may settle in the range of around 6.5 to 7 per cent, Japanese financial services major Nomura has forecast . The financial major said that the short-term impact of Goods and Services Tax (GST) disruption will help India see better growth in the second quarter. “I think 6.1 per cent GDP growth should be the bottom of the growth front and we should see a gradual pickup in the growth numbers,” said Sonal Varma, Managing Director and India Chief Economist at Nomura Singapore Pte Ltd. “More gradual (recovery) in the second quarter, may be around 6.5 to 7 per cent – in that range, but more stronger post-June,” said Varma during Nomura’s economic briefing held in Singapore. “The indicators that we are seeing so far in terms of high frequency numbers – car sales, two-wheeler sales, tractors sales, the momentum that we are seeing in terms of coal production, power generation are suggesting that on an average the June quarter will still be better than the first quarter,” she said.
The Reserve Bank of India kept the repo rate and reverse repo rate unchanged at 6.25 per cent and six per cent, respectively, at Wednesday’s monetary policy review, keeping in line with what analysts and experts had forecast. Statutory liquidity ratio (SLR) was cut by 50 basis points to 20 per cent starting June 24, in order to provide more liquidity to banks. The RBI cut the economic growth projection to 7.3 per cent for the current financial year from 7.4 per cent earlier. The central bank’s decision to leave the repo rate at a 6-1/2 year low had been expected by 56 of the 60 analysts surveyed by Reuters. RBI last changed the policy rate with a 25 basis points cut in October. The RBI last changed its reverse repo rate in April with a surprise 25 basis point increase. The vote by the central bank’s Monetary Policy Committee (MPC) was 5-1, the first dissent in the five meetings since the MPC was formed last September. “The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of four per cent within a band of +/- 2 per cent, while supporting growth,” the RBI said in its second bi-monthly policy review for 2017-18. RBI, however, softened its hawkish stance owing to fall in retail inflation to a record low and weak growth. The retail inflation in April was 2.99 per cent, well below RBI’s own target of four per cent. The RBI lowered its inflation forecast for the current financial year. Noting that inflation has fallen below four per cent only since November 2016, the MPC remained focused on its commitment to keeping headline inflation close to four per cent on a durable basis keeping in mind the output gap. Stating that the “abrupt and significant” retreat in inflation in April would need to be assessed, the central bank in its policy statement said; “If the configurations evident in April are sustained, then absent policy interventions, headline inflation is projected in the range of 2.0-3.5 per cent in the first half of the year and 3.5-4.5 per cent in the second half.”