The Reserve Bank of India (RBI) logo is seen inside its headquarters in Mumbai. | Photo credit: Reuters
The finance ministry said on Thursday (December 26, 2024) that “a combination of monetary policy stance and macroprudential measures by the central bank may have contributed to a reduction in demand in the economy” – a comment two days after the Reserve Bank of India’s (RBI) monthly bulletin article said it was urgent to “stimulate inflation”. Actions were taken so that a strong push for borrowing, consumption and investment.
Although the review said there were “good reasons to believe” that economic growth was better in the second half of the year, with the economy growing by 6 percent in April and September compared with April and September, officials in the ministry’s economic department reiterated their growth. Expectations for 2024-25 are “around” 6.5%.
The monthly economic report of the Ministry until the end of October said that this year the rate of growth will be 6.5 to 7 percent. The latest review, released a month ago and days before second-quarter growth estimates showed GDP grew to a seven-quarter low of 5.4%, was muted on growth estimates but expressed cautious optimism about the economic outlook for the coming months.
The ministry’s latest review also flagged a “significant and rapid” slowdown in credit growth in India this year, and the RBI’s move to cut the cash reserve ratio from 4.5% to 4% in its December review of monetary policy was “good news that will help boost credit flows”. .
“Sustaining growth requires a deeper commitment to growth from all economic stakeholders,” the November review underlined, citing new uncertainties that cloud the outlook for 2025-26. The comments assume significance amid growing clamor for the central bank to cut interest rates to spur investment and growth.
While global business growth looks more uncertain than ever, the review noted that a higher stock market continues to pose greater risks. “The strength of the U.S. dollar and the rethinking of the path of policy rates in the United States are putting emerging market currencies under pressure. In turn, this is forcing monetary policymakers in these countries to think more deeply about the path of policy rates. Recent exchange rate movements may have reduced their degree of freedom,” It stopped.
These factors will also weigh on the minds of India’s monetary policymakers, the ministry acknowledged. “India’s growth outlook in the coming years to 2025-26 is bright through the lens of Indian domestic economic fundamentals, but is also subject to fresh uncertainties,” the review stressed.
A “promising” rabi harvest ahead will help ease food inflation pressures throughout the year, and a fall in international crude oil prices should curb price hikes, the ministry said, citing higher global edible oil prices and India’s high dependence on imported edible oil. A close watch would be warranted to keep inflation under control.
published – Dec 26, 2024 09:49 pm IST