The Reserve Bank of India (RBI) expects the country's economic growth rate to grow at 7.4 per cent in the current financial year on pick up in industrial activity and good monsoon.

RBI releasing its annual report in Mumbai on Wednesday said due to the evolving economic conditions, real GDP growth for 2018-19 is expected to increase to 7.4 per cent from 6.7 percent in the previous year.

The RBI said its monetary policy will continue to be guided by the objective of achieving the medium term target for retail inflation of 4 per cent.

Agricultural production is likely to remain strong, growth in industry is strengthening and all other major sectors are reporting robust sales and improvement in profitability.

The prevailing negative credit-to-GDP gap indicates that there is sufficient scope for credit absorption and expansion in bank lending on a sustained basis.