The headline retail inflation moderated to 6.44 per cent in February 2023 from 6.52 per cent in January. This moderation in headline inflation by 8 bps between January and February was driven by a favourable base effect of 24 bps, which more than offset the positive momentum of 17 bps.
The central bank noted that Andhra Pradesh and Telangana experienced higher inflation (excess of 8 per cent) while Chhattisgarh, Delhi, Goa, Himachal Pradesh and Manipur saw lower inflation (below 4 per cent).
The RBI expects inflation in FY24 to range tightly between 5.0 per cent to 5.6 per cent “if India survives an El Nino event adversely affecting the south west monsoon, given global uncertainties”.
RBI noted that the while the direct impact of bank collapses in the US on economic activity could be limited, markets are bracing for tighter financial conditions.
“It could present a trade-off between financial stability concerns and the conduct of disinflationary monetary policy,” RBI said in its State of the Economy article in the bulletin.
“Yield curves are in deep inversion and the future looks darker than it did just a few weeks ago in early February,” the RBI wrote, referring to the overall global context.Growth prospects
India, an emerging market economy, typically runs a current account deficit (CAD) so that deficient national saving is supplemented by foreign resources to achieve desired levels of investment.
During the Covid-19 pandemic, the gap between investment and saving reversed from a gap of 0.8 per cent of GDP in 2019-20 to a surplus of 1.0 per cent in 2020-21.
However, in 2021-22 it flipped to a gap of 1.2 per cent.
“If this is suggesting the beginning of a new trend as indicators for 2022-23 also point, India’s growth prospects are poised to improve,” the RBI said.
Highlighting the resilience of the Indian economy, the RBI said that the Indian economy is intrinsically better positioned than many parts of the world. It cited demonstrated resilience and its reliance on domestic drivers as the primary reasons.
“Even as global growth is set to slow down or even enter a recession in 2023 as global financial markets wager, India has emerged from the pandemic years stronger than initially thought,” the report said.
“Unlike the global economy, India would not slow down – it would maintain the pace of expansion achieved in 2022-23,” the RBI said.
The central bank’s nowcast of real GDP growth for the fourth quarter of the current 2022/23 year stands at 5.3 per cent, it said.
India’s economy grew by 4.4 per cent in the third quarter and is expected to expand by 7 per cent for the fiscal year ending March after recording a growth of 9.1 per cent in 2021-22.
