Economy resilient, on track to
grow at about 7% in FY23: RBI report
India s gross domestic
product (GDP) is expected to grow between 6.1 per cent and 6.3 per cent in the
June-September quarter (Q2FY23) based on high-frequency indicators and economic
prediction models, according to a Reserve Bank of India (RBI) report released
If this is realised,
India is on course for a growth rate of about 7 per cent in 2022-23, said the
State of the Economy report authored by RBI staffers including Deputy Governor
M D Patra. The RBI has said views expressed in the article are those of the
authors and do not represent its views.
The Q2 GDP numbers will
be out by the end of this month. The monetary policy review in October
projected Q2 GDP growth at 6.3 per cent.
With headline inflation
beginning to show signs of easing, the domestic macroeconomic outlook can best
be characterised as resilient but sensitive to formidable global headwinds,
the report said.
India s retail inflation
softened to a three-month low of 6.77 per cent in October from 7.41 per cent in
September as food prices declined substantially, which could prompt the
Monetary Policy Committee (MPC) of the RBI to slow down on rate hikes. Since
May this year, the MPC has raised the policy repo rate by 190 bps to 5.9 per
The report observed that
there was a change in the thinking of global central banks as some of them had
slowed rate increases, and indicated that the end of rate hikes was in sight.
data arrivals of the most
recent vintage on the far side of the Atlantic and in India suggest a grudging
let-up in inflationary pressures. Consumer price index (CPI) inflation has
somewhat eased across BRICS economies and in several other emerging market
economies (EMEs) as well, benefiting from lower commodity prices, it said.
Touching upon the recent
easing of pressure on the domestic currency, the State of the Economy article
said a relief rally swept across the globe on November 11 after US data
showed a larger-than-expected decline in the country s inflation. The data
sparked hopes of the Federal Reserve adopting a softer approach to what has
been an extremely aggressive tightening cycle so far.
Between October 27 to
November 11, the rupee strengthened by 2.2 per cent against the US dollar, 1.2
per cent versus the British pound and 0.5 per cent against the euro, the
In the recent period,
the US dollar s rally to successive highs has sent currencies across the world
into a downward spiral, but a closer look reveals that EME currencies are
posting only half the losses seen in advanced economy (AE) currencies, it
A depreciating rupee adds
to domestic inflationary pressures by pushing up India s import bill.
According to the article,
volatility in G7 currencies has surpassed that of emerging market currencies
for the first time since March 2020. This reflects resilience and the fact
that early, aggressive rate hikes have delivered real rates or close to them,
offering higher carry Latin America has led the way, it said.
Citing the Bank for
International Settlements triennial survey of over-the-counter foreign
exchange turnover, the article said that trading in OTC markets reached $7.5
trillion a day in April 2022, rising 14 per cent from three years back.
While the share of the
rupee dropped to 1.6 per cent from 1.7 per cent three years ago, in exchange
traded derivatives, the share of the rupee was at 12.9 per cent, the fourth
largest in the world, the article said.
Commenting on the
liquidity situation, the report said system liquidity was normalising in
consonance with the stance of monetary policy but it was still in surplus mode,
with the central bank absorbing about Rs 1.5 trillion on a daily basis on
average. The effective absorption rate rose by 1.75 percentage points between
end-April and mid-November in response to monetary policy actions.
The report said that
commercial bank credit growth had been surging, led by services, personal
loans, agriculture and industry. The capital adequacy ratio, which is well
above 16 per cent, reflects the banking sector is well capitalized with
provision coverage ratio of over 70 per cent.
assets (GNPAs) have consistently declined, with net NPAs sliding down towards 1
per cent of total assets, it said while acknowledging that inflation is
impacting corporate performance.