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The Reserve Bank of India (RBI) has predicted that 2023 would probably be characterised by a milder global slowdown than anticipated earlier, but added that the trajectory remains unpredictable.

In its monthly bulletin for the month of February which was released on Friday, the central bank said: "In India, domestic consumption and investment stand to benefit from stronger prospects for agricultural and allied activities, strengthening business and consumer confidence, and strong credit growth."

Supply responses and cost conditions are poised to improve even though inflation witnessed a rebound in January, the bulletin in its "State of the Economy" chapter, adding that the union budget's focus on capital expenditure is expected to crowd-in private investment, strengthen job creation and demand and raise India's potential growth.

An authored article in the bulletin titled "The Long Shadow of Federal Reserve's Actions: Monetary Policy and Uncertainty Spillovers to India" noted that cross-border transmission of economic shocks arising from changes in the macroeconomic policy stance in major advanced economies has emerged as a key challenge for emerging market economies.

The article analyses the impact of monetary policy actions of the US Federal Reserve on the Indian economy over the last two decades, observing that in line with international evidence, changes in the monetary policy stance of the US Federal Reserve tend to impact the Indian economy, altering domestic output and inflation.

It predicted that heightened uncertainty around the stance and actions of the US Federal Reserve is estimated to reduce aggregate demand in the Indian economy.