Reserve Bank Governor Shaktikanta Das. (file photo)
Reserve Bank of India Governor Shaktikanta Das says Indian economic activity remains resilient but there are global headwinds due to geopolitical tensions; They also say that inflation has come down
RBI Governor Shaktikanta Das on Thursday presented the first bi-monthly monetary policy of FY24, surprisingly announcing a moratorium on repo rate hikes after six consecutive hikes since May last year. He said Indian economic activity remains resilient, but there are global headwinds due to geopolitical tensions. He also said that inflation, however, has come down. Here’s what he said about inflation, growth and the overall global economy.
on inflation
- The softening in inflation during November-December 2022 turned out to be fleeting with the CPI headline crossing the upper tolerance limit in January-February 2023.
- The sharp turnaround in food inflation accelerated headline inflation as core inflation across all goods and services remained elevated.
- Looking ahead, expectations of a record rabi harvest bode well for easing food price pressures. There is already evidence of a recovery in wheat prices in March on supply-side intervention by the government. However, the impact of recent unseasonal rains in some parts of the country needs to be monitored.
- Global commodity prices have softened significantly from elevated levels a year ago.
- Unfavorable climate conditions are a risk to the future inflation trajectory. Milk prices are likely to strengthen in the summer season due to tight demand-supply situation and feed cost pressure.
on GDP growth
- India’s real GDP is estimated to grow by 7 percent in the financial year 2022-23. Therefore, economic activity remains resilient.
- On the supply side, rabi crop production is estimated to increase by 6.2 per cent in FY23.
- PMI manufacturing remains strong. There is a boom in service sector activity.
- Aggregate demand conditions remain resilient in Q4 FY2023, even as there are some signs of a slowdown in private consumption.
- Urban demand indicators such as passenger vehicle sales and credit card spending posted strong growth in February, while consumer durables contracted in January.
- Rural demand indicators, such as consumer non-durables, and tractor and two-wheeler sales registered healthy growth.
- Net external demand continues to decelerate due to heightened global headwinds. Prolonged geopolitical tensions and global financial market volatility pose downside risks to the outlook.
- Real GDP growth for FY24 is estimated to pick up to 6.5 per cent, followed by 7.8 per cent in the first quarter, 6.2 per cent in the second quarter, 6.1 per cent in the third quarter and 5.9 per cent in the fourth quarter. The risks are evenly balanced.
on the global economy
- The global economy is now witnessing a new phase of turbulence with fresh headwinds from the banking sector turmoil in some advanced economies.
- The fight against inflation is far from over, with the global economy now facing serious financial stability challenges from banking sector developments in some advanced economies.
- Bank failures and contagion risk have brought financial stability issues to the fore. Given the persistence of inflation, central banks continue to tighten monetary policy, albeit at a slower pace. Inflation has come down globally in recent months, but the descent to the target is proving long and difficult
- What we are seeing today is unprecedented uncertainty in geopolitics, economic activity, price pressures and financial markets that have never been seen before. One can imagine the magnitude of the challenges facing central banks and other policy makers in today’s world.
- Supply chains are returning to normalcy globally as well as domestically.
- The announcement of a sudden production cut by OPEC+ a few days ago and the resulting jump in crude oil prices is another testimony to this volatility.
The RBI MPC on Thursday unanimously decided to keep the repo rate unchanged at 6.50 per cent. The pause comes after six consecutive rate hikes since May 2022, and since then the RBI has hiked the repo rate by 250 bps. The RBI MPC also voted with a 5:6 majority to remain focused on ‘withdrawing the adjustment’. This is to ensure that the focus on growth is aligned with the inflation target.
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