Inflation To Ease, Strengthening Of Economic Activity Likely To Sustain: RBI

The RBI bulletin also mentioned that the possibility of India slipping into stagflation is low

The Reserve Bank of India (RBI) in an article published in the RBI bulletin on Wednesday said the broad-based strengthening of economic activity in India will likely be sustained and retail inflation is expected to ease to 4.6 per cent in the first three quarters of 2024-25 from the latest print of 5.6 per cent. According to the bulletin, the pace of global growth likely to slow further in 2024 while disinflation at varying pace in different geographies may pave the way for interest rate reductions, said the article on the state of the economy.

"In India, the broad based strengthening of economic activity that is underway will likely be sustained by easing input costs and corporate profitability," it said. Consumer Price Index (CPI) based inflation rose to 5.6 per cent in November as the recurrence of food price spikes punctured a brief respite in September and October. "... but it is expected to ease to 4.6 per cent in the first three quarters of 2024-25," said the article authored by a team led by RBI Deputy Governor Michael Debabrata Patra.

The bulletin mentioned that the possibility of India slipping into stagflation, a condition where inflation continues to rise amid slowdown in growth, is low.

The 'stagflation risk' in India is just 1 per cent, the study by Deba Prasad Rath, Silu Muduli, and Himani Shekhar said, noting that unlike the past episodes, commodity price shocks aren't so severe and persistent.

In the past three decades, episodes such as the Asian Crisis (1997-98), the global financial crises of 2008-09, the taper tantrum of 2013, and the Covid-19 pandemic have increased risks of stagflation, the study, which does not represent the views of the central bank, said.

In case of the Covid-19 pandemic, higher commodity prices and the appreciation of the US dollar post-pandemic raised the stagflation risk globally, along with delays in the monetary normalisation process after the pandemic, as per the study.

The bulletin also said that domestic financial markets have been lifted by the abiding strength of the real economy. The RBI, however, said the article does not represent the views of the central bank.