Aggregate demand is firm and poised to expand further as the festival season sets in, the Reserve Bank of India’s monthly bulletin for September 2022 has said. “Domestic financial conditions remain supportive of growth impulses,” the bulletin states.
In the chapter on the state of the economy, the article says the economy is ‘poised to shrug off’ the weakening of momentum in April-June when gross domestic product growth surged to 13.5%, although due to a favourable base effect.
With inflation remaining beyond the RBI’s tolerance level of 6% for the past eight months, the central bank has noted that this underscores the need for the monetary policy to keep second order effects contained and inflation expectations firmly anchored. The loss of momentum in global economic activity may be taking the edge off inflation
On prices, the article said rise in retail inflation to 7% was ‘largely in line with this prognosis’.
“…we maintain our view that inflation momentum should ease in Q3 (October-December) and turn mildly negative in Q4 (January-March 2023).
With base effects being favourable in the second half of 2022-23, inflation should moderate, although upside risks are in the air,” the bulletin said.
Based on the recommendations of the RBI governor-headed monetary policy committee (MPC), the central bank has already raised the key short-term lending rate by 140 basis points in three tranche since May this year to check inflation.
The next meeting of the MPC is scheduled during September 28-30.