Demand conditions gathering momentum in India: RBI Bulletin
The Reserve Bank of India (RBI) in its latest monthly Bulletin has said that persistent geopolitical tensions, rekindled fears of a potential recession in key economies and financial market volatility in response to monetary policy divergence cast a shadow on global economic prospects even as inflation moderated grudgingly across countries.
The Bulletin further noted that in India, aggregate demand conditions are gathering momentum with revival in rural consumption on the back of growing incomes. This stimulus to demand is expected to reinvigorate the hitherto subdued participation of the private sector in total investment. Headline inflation moderated from its spike in June to 3.5 per cent in July, but this was primarily due to the downward statistical pull of base effects.
According to the Bulletin, the persistence of food inflation - in terms of the time taken to return to normalcy after a shock - has increased mainly on account of rising expectations driven by repeated supply shocks due to adverse climatic incidents of rising intensity. Persistent food inflation is spilling over through general inflation expectations to costs, services charges and output prices, although this fuller impact is offset by monetary policy. It further noted that monetary policy vigil is warranted so as to prevent the generalisation of inflationary pressures, in order to achieve overall price stability and thereby preserve and strengthen the foundations of a high growth trajectory.
