RBI Bulletin: Despite global headwinds, domestic macroeconomic conditions strengthen

Despite global headwinds, domestic macroeconomic conditions continued to strengthen, the Reserve Bank of India (RBI) said in its June round of Bulletin on June 16.

Noting that downside risks to global growth have accentuated with the risk of commodity price-driven inflation turning more generalised, the Bulletin said despite global pressure, India's economy continued to strengthen.

With a growth rate of 8.7 percent in 2021-22, India’s gross domestic product (GDP) surpassed its pre-pandemic (2019-20) level by 1.5 percent and the recovery remains robust in 2022-23 so far, the Bulletin said.

"The y-o-y Consumer Price Index (CPI) inflation print for May was lower than the previous month after seven months of continuous rise," the Bulletin said.

The Reserve Bank of India today released the June 2022 issue of its monthly Bulletin. The RBI bulletin is a monthly publication that offers an insight into key macroeconomic data trends in the Indian and global economy.

According to the Bulletin, the Government securities yield curve indicates an improvement in long-term growth prospects and an upshift in ex ante inflation expectations. “At the same time, the fact that the yield curve has become steeper and concave reconfirms expectations of tighter monetary policy in the period ahead,” the Bulletin said.

The government securities yield curve is widely regarded as a valuable predictor of future macroeconomic developments.

According to the Bulletin, the slope of the yield curve steepened with the onset of pandemic-related policy easing which has reversed in the recent policy tightening phase.

“The curvature increased sharply during the pandemic-related easing and after the Union Budget announcement of a large market borrowing programme for 2021-22 till the announcement of G-SAP in April 2021,” the Bulletin said.

The G-Sec Acquisition Programme (G-SAP) is basically an unconditional and a structured Open Market Operation (OMO), of a much larger scale and size. RBI has called the G-SAP as an OMO with a 'distinct character'

Incoming data suggests that global growth is losing steam in the first and second quarter of 2022 possibly entering contractionary zone, the Bulletin said.

In the second forecast exercise, global GDP growth is forecasted to have lost momentum in first quarter of 2022 under the baseline scenario and likely to enter contractionary zone in  second quarter. The decline is expected to be much sharper under the alternative scenario, the Bulletin said.