Aggregate demand is firm and poised to expand further as the festival season sets in, the Reserve Bank of India’s (RBI) monthly bulletin for September 2022 has said In its chapter on the ‘State of the Economy’, it said the economy is poised to shrug off the modest tapering of growth momentum in the first quarter of 2022-23.
“Domestic financial conditions remain supportive of growth impulses,” according to the bulletin.
As per the article, the Indian economy is “poised to shrug off” the weakening of momentum witnessed in April-June when gross domestic product growth surged to 13.5 per cent, albeit due to a favourable base effect. With inflation staying beyond the RBI’s tolerance level of 6 per cent for the past eight months, the central bank has noted that this underscores the need for the monetary policy to keep second order effects contained and inflation expectations firmly anchored. The loss of momentum in global economic activity may be taking the edge off inflation
On prices, the article said the rise in inflation to 7 per cent was “largely in line with this prognosis”. “…we maintain our view that inflation momentum should ease in Q3 (October-December) and turn mildly negative in Q4 (January-March 2023).
“With base effects being favourable in the second half of 2022-23, inflation should moderate, although upside risks are in the air,” the bulletin said. The RBI has already raised the key short-term lending rate by 140 basis points in three tranche since May this year to check inflation. The next meeting of the Monetary Policy Committee is scheduled for September 28-30.
Meanwhile, as per at PTI report, another RBI article on Friday favoured frontloading of monetary policy actions, such as interest rate hikes, to contain inflationary pressures without sacrificing medium-term growth prospects. The RBI, however, said the opinions expressed in the article are those of the authors and do not represent the views of the Reserve Bank of India (RBI).
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Loss of momentum in global economic activity may be taking the edge off inflation, which remains elevated, said the article by a team lead by Reserve Bank Deputy Governor Michael Debabrata Patra.
Separately, another article published on the RBI bulletin said the nation’s current account deficit (CAD) — a key indicator of balance of payment of a country — is likely to remain within 3 per cent of the GDP in FY23 against 1.2 per cent during last fiscal. The widening trade deficit, or the gap between value of imports and exports, puts pressure on balance of payments. FE, WITH PTI
