Reserve Bank of India (RBI) officials wrote in an article on the ‘state of the economy’ in August that monetary authorities would still need to take necessary policy action to contain inflation as it remains above the target range. Even if it has been relaxed a bit. Edition of RBI Bulletin.
“Inflation has moderated, but its persistence at higher levels warrants an appropriate policy response to expectations going forward,” the officials wrote.
Noting that global growth prospects had turned bleak in the month, he said easing supply chain pressures and the recent fall in commodity prices were providing some respite from record high inflation.
“In India, the supply situation is improving, with the recent accelerating monsoon, strong momentum in manufacturing and a rebound in services. The onset of the festive season should boost consumer demand, including rural, as sowing activity picks up. Strong central government capital outlays are supporting investment activity,” he wrote.
“Among some mixed signals emitted by high-frequency indicators, perhaps the best word to describe the state of domestic economic activity relative to the rest of the world is resilience,” said officials, including Deputy Governor Michael Debabrata Patra.
Stating that private final consumption expenditure, the mainstay of the economy, was poised to rise in the upcoming festive season, which in turn would also dampen rural demand, he said investment demand separately benefited from a massive 54% growth at the Centre. was happening. Government’s capital outlay. “But business investment remains sluggish despite strong sales growth and increased profits,” he said.
Emphasizing that inflation in July had declined by 30 basis points from June and by 60 basis points from an average of 7.3% for Q1: 2022-23, he said, “This validates our hypothesis. that inflation peaked in April 2022”.
“For the rest of the year, RBI’s projections show a consistent slowdown in the pace of price movement,” he said.
“Fortunately, the base effects are favorable to all. If these expectations remain in place, inflation will fall to 7 to 5% in the first quarter of the next fiscal – within the tolerance band, hovering close to the target, but yet to land. is not in a condition,” he wrote.
Stating that this was a turning point in the inflation trajectory, he stressed that “imported inflation pressure points remain highly risky, followed by pending pass-through of input costs if producers regain pricing power”.
Noting that after Q1: 2023-24, the task before the MPC will be to guide inflation to a target of 4%, he said, making it even more difficult than slowing inflation down to a level below 6% and in the tolerance band. Will be proven ( 2-6%).
On a positive note, officials highlighted the return of capital inflows after a hiatus when appetite for portfolio inflows in emerging economies worsened as the dollar appreciated with the US Federal Reserve tightening policy.
“India is returning cautiously to be a taste of this season’s portfolio flows, with $5 billion inflows as of August 12,” he wrote. “The market value of portfolio investments in India was $623.8 billion as of August 12.”
In the final analysis, he wrote, India was prepared to sustain the growth gap with the rest of the world based on several fundamental factors, including the growing formality of the economy and expanding capital availability with digital finance. Inclusion.