In its November bulletin released on Thursday, the Reserve Bank of India (RBI) cautioned that, despite the welcome relief in retail inflation over the past two months, India is “not out of the woods yet.”
The report acknowledged the readings of around 5 percent and 4.9 percent in September and October, respectively, as a relief from the higher average inflation rates recorded earlier in the year. However, the RBI emphasized the need for continued vigilance, recognizing that challenges still lie ahead despite the recent positive developments.
India’s annual retail inflation eased to a four-month low of 4.87 percent in October, a positive trend that the RBI acknowledged but noted that it remained above the central bank’s 4 percent target. The RBI expects inflation to average 5.4 percent in the fiscal year 2023-24.
The discussion in the report highlighted high-frequency food price data, indicating further increases in cereal and pulse prices, while edible oil prices continued to decline. The central bank remains watchful of these factors as they contribute to overall inflationary pressures.
Despite the inflation challenges, the RBI report ‘State of the Economy’ pointed to several robust economic fundamentals. India’s growth, it noted, continues to rely on strong domestic demand, providing a buffer against external shocks. The country’s external sector is considered viable, supported by a modest current account deficit, resilient capital flows, a stable currency, and healthy foreign exchange reserves.
The economic growth trajectory of India has shown positive momentum, with the central bank noting that the change in gross domestic product is expected to be sequentially higher in October-December due to “ebullient” festival demand. Investment demand also appears to be resilient, supported by the government’s infrastructure spending, an uptick in private capital expenditure, and advancements in digitalization.
Regarding monetary policy, the RBI highlighted the calibrated normalization of surplus liquidity and robust credit growth during the current tightening phase. However, the transmission of rates is still not complete. The bulletin mentioned that while the transmission to term deposits has been robust, savings deposit rates have exhibited “rigidity,” indicating a need for further adjustments in certain segments of the financial market to enhance the effectiveness of monetary policy measures.
Post Your Comments