India’s economic growth is poised to recover as domestic demand strengthens again, but “stickiness” in food inflation requires careful monitoring, the central bank said in its monthly bulletin released on Friday.
In India, there is a “conducive acceleration” in high-frequency economic activity indicators in the second half of 2024-25, signaling an implicit improvement in real gross domestic product growth for this period, the Reserve Bank of India said in an article titled ‘State of the Economy’ in the newsletter.
Rural demand continues to gain momentum, reflecting resilient consumption, supported by a brighter agricultural outlook, the RBI said.
A revival of government capital spending on infrastructure is also likely to stimulate growth in key sectors, he added.
The RBI’s current model estimates the Indian economy will grow by 6.2% in the October-December quarter, according to the bulletin.
India’s economy grew by 5.4% in the July-September quarter over a year earlier, compared with 6.7% growth in the previous three months.
Growth is projected to slow to a four-year low of 6.4% in the financial year ending March 31.
Although headline inflation eased for the second consecutive month in December, sticky food inflation requires careful monitoring of its secondary impact, the RBI said in its bulletin.
India’s annual retail inflation (INCPIY=ECI) fell to a four-month low of 5.22% in December, lower than economists’ forecast of 5.3%.
Slowing inflation is likely to pressure the Monetary Policy Committee to cut interest rates in February, but the rupee’s depreciation has complicated matters for the rate-setting panel, some analysts said.
Volatility in portfolio flows due to global risk-on-risk-off sentiment is the source of exchange rate volatility, not inflation or interest rate differentials, the RBI said in a separate article in the bulletin.
“Wasting time to dampen exchange rate volatility is more effective than trying to influence exchange rate levels through major interventions,” the RBI said.
Source: Reuters
