Inflation stubborn, signs of upturn in capex: RBI – Times of India


MUMBAI: The state of the economy report released by the Reserve Bank of India (RBI) has said that the battle against inflation continues even as there were signs of an upturn in the capital expenditure cycle. The observation seems to hint at continuing with rate hike action as prices rise and economic activity heats up.
“Inflation may be slightly down, but it is certainly not out. If anything, it has broadened and become stubborn, especially at its core,” the report said. It pointed to uncertainty over oil prices and higher food rates due to global weather conditions.
In its December monetary policy, the central bank had moderated its rate hike from 50 basis points (100bps = 1 percentage point) in the three earlier policies to 35bps. This was seen by some as a policy pivot. Also, the drop in inflation to 5.9% in November brought it within the RBI’s tolerance zone of 6%. However, the language in the state of the economy report indicates that the rate hike cycle is not over.
On the demand side, the central bank sees increased economic activity. “Corporate balance sheets also reflected a turn-up in investments in fixed assets, heralding the modest beginning of an upturn in the capex cycle. Sensing these potential tailwinds, domestic financial markets have rallied, and it is the capacity of Indian companies to turn the pick-up in economic activity into earnings growth that is offsetting investor caution on high valuations,” the report said.
According to the RBI, the near-term growth outlook for the Indian economy is supported by domestic drivers as reflected in trends in high-frequency indicators. The central bank said that while headline inflation moderated by 90bps to 5.9% in November driven by a fall in vegetables prices, core inflation remained steady at 6% .
The RBI said high-frequency indicators continue to suggest resilient economic activity. “The outlook for private consumption and investment is looking up, although relatively higher inflation in rural areas is muting spending in those regions,” it said. On growth, the RBI said that in 2023, India is projected to be among the fastest growing economies within G20.


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