 "Growth momentum to hold amid easing inflation, says RBI annual report")
After averaging 6.7 per cent in 2022-23 (FY23), the consumer price index (CPI)-based inflation rate may moderate in the current financial year, the Reserve Bank of India (RBI) has said, noting that risks are decreasing with downward corrections in the global commodity and food prices and the easing of the pass-through from high input cost pressures of last year.
At the same time, India’s growth momentum is likely to be sustained in FY24 in an atmosphere of easing inflationary pressures, the RBI said in its annual report for 2022-23, released on Tuesday.
The cumulative increase of 250 basis points in the policy repo rate last year “would steer the disinflationary process”, along with supply-side measures to address the transient demand-supply mismatch due to food and energy shocks, the report said. “But for the timely monetary actions, inflation is estimated to have been higher by 90 bps,” it added.
The central bank pressed the pause button in April by keeping the policy rate unchanged, though Governor Shaktikanta Das emphasised that it was just a pause and not a pivot, thus retaining the option to tighten the monetary policy further.
“With a stable exchange rate and a normal monsoon — unless an El Niño event strikes — the inflation trajectory is expected to move down over 2023-24, with headline inflation edging down to 5.2 per cent from the average level of 6.7 per cent recorded last year,” the report said.
“Monetary policy remains focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth,” the report added.
The next meeting of the RBI’s monetary policy committee (MPC) is scheduled for June 6-8.
The report observed that proactive supply-side interventions by the government also helped contain price pressures while adding that geopolitical dynamics and possible weather disturbances clouded the outlook for inflation in India.
The March 2023 round of the RBI’s consumer confidence survey reveals that the current situation is perceived by consumers to have improved on account of optimism in the general economic situation and in household income.
The report said crowding-in effects of the sustained increase in government capex in recent years were expected to spur higher private investment in 2023-24.
Commenting on the external sector, the RBI said the current account deficit could moderate, drawing strength from robust services exports and the salubrious impact of moderation in commodity prices of imports.
“The favourable domestic growth outlook, lower inflation, and business-friendly policy reforms could, however, help sustain buoyant FDI inflows. Furthermore, inward remittances are likely to remain robust owing to better growth prospects in the Gulf countries,” it said.
At the same time, India’s growth momentum is likely to be sustained in FY24 in an atmosphere of easing inflationary pressures, the RBI said in its annual report for 2022-23, released on Tuesday.
The cumulative increase of 250 basis points in the policy repo rate last year “would steer the disinflationary process”, along with supply-side measures to address the transient demand-supply mismatch due to food and energy shocks, the report said. “But for the timely monetary actions, inflation is estimated to have been higher by 90 bps,” it added.
The central bank pressed the pause button in April by keeping the policy rate unchanged, though Governor Shaktikanta Das emphasised that it was just a pause and not a pivot, thus retaining the option to tighten the monetary policy further.
“With a stable exchange rate and a normal monsoon — unless an El Niño event strikes — the inflation trajectory is expected to move down over 2023-24, with headline inflation edging down to 5.2 per cent from the average level of 6.7 per cent recorded last year,” the report said.
“Monetary policy remains focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth,” the report added.
The next meeting of the RBI’s monetary policy committee (MPC) is scheduled for June 6-8.
The report observed that proactive supply-side interventions by the government also helped contain price pressures while adding that geopolitical dynamics and possible weather disturbances clouded the outlook for inflation in India.
The March 2023 round of the RBI’s consumer confidence survey reveals that the current situation is perceived by consumers to have improved on account of optimism in the general economic situation and in household income.
The report said crowding-in effects of the sustained increase in government capex in recent years were expected to spur higher private investment in 2023-24.
Commenting on the external sector, the RBI said the current account deficit could moderate, drawing strength from robust services exports and the salubrious impact of moderation in commodity prices of imports.
“The favourable domestic growth outlook, lower inflation, and business-friendly policy reforms could, however, help sustain buoyant FDI inflows. Furthermore, inward remittances are likely to remain robust owing to better growth prospects in the Gulf countries,” it said.
The rising cost of borrowing in 2022-23 rendered external commercial borrowings (ECBs) less appealing for raising funds as compared with the previous year, the report said.
The report observed that in the turbulent global economic environment, India had experienced macroeconomic and financial stability with a steady pick-up in the momentum of growth.
The report expects the Indian economy to grow at 7 per cent in FY23.
“This reflects a sound macroeconomic policy environment and the innate resilience of the economy which fortified it against recurring global shocks. India has remained among the fastest growing major economies of the world, contributing more than 12 per cent to global growth on average during the last five years,” the report said.
The report said slowing global growth, protracted geopolitical tensions, and a possible upsurge in financial market volatility following new stress events in the global financial system, however, could pose downside risks to growth. “It is important, therefore, to sustain structural reforms to improve India’s medium-term growth potential,” it said.