RBI anticipates festive demand to revive India’s economy but warns of inflation and global risks
The Reserve Bank of India said it is optimistic about the country's economic outlook, citing a revival in consumer demand during the festive season and improving sentiment in the business as well as rural segments. However, it warned that geopolitical tensions in the Middle East and fluctuating commodity prices would also pose challenges that could impact exports and monetary policy in the near term.
The RBI, in its October bulletin, picked up on this point that rural demand is expected to grow positively with an optimistic agricultural outlook, and private investment will likely be fostered through increased consumer spending and rising business confidence. Through the rest of the fiscal year, ending next March 2025, the central bank also expects the acceleration of government spending.
Despite all this, the RBI is still tight-fisted when it comes to external risks. It has sounded warnings about rising global commodity prices, such as crude oil and metals, that might have an impact on inflationary pressures. It has sounded a word of caution that in such a scenario, monetary policies around the world may have to balance growth and inflation blow from commodity price shocks.
After it surprised everyone in 2024, it now very visibly sees its growth slowing down-in particular, in consumption in cities. It appears that economists, including Goldman Sachs, revise their estimates; they forecast 6.5 percent GDP growth in the current fiscal year, against the RBI's 7.2 percent estimate.
Thus, the RBI, while noting that the second-quarter slowdown in momentum in 2024-25 could partly be due to such unusual factors as heavy rains in August and September, views this dip as temporary and expects growth to stabilise soon.
Recently, RBI's policy stance has been shifted to neutral, in effect meaning an interest rate cut in the near time ahead. However, still, it is inflation that is once again at the centre of attention. The governor clarified that the monetary easing could be brought only if inflation can be brought sustainably in the target range of 4%. According to the data due on Monday, there is a likely expectation that inflation rebounded in September, which will further complicate the decisions made by the bank regarding the near-future actions of policy.
Governor Shaktikanta Das has said that rate cuts will be administered only if inflation comes within the central bank's long-term targets.