India’s retail inflation has shown signs of moderation in the past two months, providing some relief from the pressures of high prices, according to the Reserve Bank of India (RBI). In its November bulletin, the RBI stated that although the country is not completely out of the woods yet, the inflation readings of around 5% and 4.9% in September and October respectively are a welcome relief compared to the average of 6.7% in 2022-23 and 7.1% in July-August 2023.
Although India’s annual retail inflation dropped to a four-month low of 4.87% in October, it still remains above the RBI’s target of 4%. The central bank predicts that inflation will average 5.4% in 2023-24.
The RBI highlighted that high-frequency food price data up to November 13th indicates that cereal and pulse prices have further increased, while edible oil prices continued to decline.
The RBI also emphasized that India’s economic growth continues to rely on domestic demand, which serves as a cushion against external shocks. The country’s external sector remains viable, with a modest current account deficit supported by resilient capital flows. Additionally, India’s currency is one of the least volatile in the world, and the foreign exchange reserves are at a healthy level.
The central bank noted that India’s economic growth has picked up, and it expects the momentum to be even higher in the October-December period due to robust festival demand.
The RBI stated that the calibrated normalization of surplus liquidity and robust credit growth have strengthened transmission during the current tightening phase, although the process is not yet complete. The transmission of rates to term deposits has been effective, while savings deposit rates have shown rigidity.
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