Moderating Inflation Bolsters Macroeconomic Fundamentals, Says RBI Article

The RBI article says that a moderation in retail inflation in September has bolstered macroeconomic fundamentals and that the Indian rupee is exhibiting low volatility. It also notes that global growth has lost pace from the third quarter of this year but that several emerging market economies have posted growth surprises.
Moderating Inflation Bolsters Macroeconomic Fundamentals, Says RBI Article

A moderation in retail inflation in September from its peak in July has bolstered macroeconomic fundamentals even as global growth lost pace from the third quarter, a Reserve Bank of India (RBI) article said on Thursday.

According to the article on 'State of the Economy' published in the latest RBI Bulletin, in India, a broad-based gaining of momentum is discernible in high frequency indicators. Deleveraging and higher capacity utilisation have enabled capital-heavy industries to gain traction, it added.

"The Indian rupee (INR) is exhibiting low volatility. Inflation has moderated from its July peak, bolstering macroeconomic fundamentals," the article said.

Retail inflation declined to a three-month low of 5.02 per cent annually in September on account of moderation in vegetables and fuel prices, and was back within the Reserve Bank's comfort level.

The inflation based on Consumer Price Index (CPI) was 6.83 per cent in August and 7.41 per cent in September 2022.

In July, inflation touched a peak of 7.44 per cent.

Further, the article said that global growth lost pace from the third quarter of this year on the back of weak manufacturing activity and tight financial conditions in advanced economies even as several emerging market economies posted growth surprises.

Surging yields and soaring crude oil prices have emerged as proximate risks to global growth, it added.

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

The article said the Indian rupee (INR) has also exhibited low volatility and orderly movements relative to peers in spite of the elevated US treasury yields and a stronger US dollar.

Movements in the INR are consistent with the strength of the underlying macro-fundamentals and the reassuring availability of buffers.

On aggregate demand, it said demand conditions are upbeat in the third quarter of 2023-24.

E-way bill volumes remained above 90 million units in September. Toll collection expanded 20 per cent (y-o-y) in terms of value.

It also noted that the all-India unemployment rate (UR) declined to 7.1 per cent in September 2023 from 8.1 per cent in August, with decline recorded in both urban and rural areas.

According to the article, with the revival of the monsoon in September, the demand for work under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) continued to decline with the progress in kharif sowing.

Rice procurement for the Kharif Marketing Season (KMS) for 2023-24 is 18.5 lakh tonnes up to October 8 against 13.6 lakh tonnes a year ago, it said.

As of September 16, 2023, the public stocks of rice and wheat were 2.4 and 0.9 times the buffer norms, respectively.

It is expected that soil moisture levels are going to improve and rejuvenate the prospects for rabi production.

Furthermore, the forecast for the north-east monsoon is 'normal' to 'above normal' over many areas of northwest and southern peninsular India.

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