Not Out Of Woods Yet, Have Miles To Go: RBI Bulletin On Retail Inflation

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Not Out Of Woods Yet, Have Miles To Go: RBI Bulletin On Retail InflationA Reserve Bank Bulletin on Thursday said retail inflation has moderated due to monetary policy action and supply-side interventions, but "we are not out of the woods yet and have miles to go".

An article on the state of the economy in the November Bulletin also noted that the global economy is showing signs of slowing down in the ongoing quarter as manufacturing languishes while services sector activity appears to have reached the end of its post-pandemic expansion.

Going forward, it said tightening financial conditions is a significant risk to the global outlook.

"In India, the momentum of the change in GDP is sequentially expected to be higher in Q3, 2023-24, with festival demand remaining ebullient," the article authored by a team lead by RBI Deputy Governor Michael Debabrata Patra said.

The authors said investment demand appears to be resilient with the government's infrastructure spending, an uptick in private capex, automation, digitalisation, and indigenisation providing a boost.

Referring to the headline inflation based on Consumer Price Index (CPI), the article said a combination of monetary policy action and supply-side interventions guided inflation down from the high reaches to which it had climbed through the first seven months of 2022-23.

In fact, November 2022 was the first month when headline inflation dropped back into the RBI's tolerance band of 2-6 percent in the whole calendar year.

"We are not out of the woods yet and have miles to go, but readings of around 5 percent and 4.9 percent in September and October, respectively, are a welcome relief from the average of 6.7 percent in 2022-23 and 7.1 percent in July-August 2023," it said.

The RBI, however, said the views expressed in the article are of the authors and do not represent the views of the central bank.

The article further said India's external sector has remained viable, with a modest Current Account Deficit (CAD) financed by resilient capital flows, one of the least volatile currencies in the world and a healthy level of foreign exchange reserves.

The momentum of growth has picked up, taking GDP well above pre-pandemic levels to becoming the fifth largest economy in the world at market exchange rates, it added.

"Steadfast policy initiatives are showing results, with the financial sector exhibiting soundness and supporting the credit needs of a resurgent economy," it said.

The 37th edition of the State of the Economy article marks the third year of its revival after a long hiatus of 25 years.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)