RBI Bulletin: Inflation easing, economy resilient but sensitive to global headwinds

With headline inflation beginning to show signs of easing, the domestic macroeconomic outlook has turned resilient but sensitive to formidable global headwinds, the RBI Bulletin said on November 18.

"Lead indicators of economic activity point to sustained resilience of the Indian economy in an uncertain and increasingly hostile global environment," said RBI Bulletin.

While urban demand appears robust, rural demand is muted but more recently picking up traction, the bulletin said. RBI publishes the Bulletin a monthly basis which is basically a collection of articles that analyse the trends in domestic and global economies.

The outlook for the global economy remains clouded with downside risks, the bulletin said. Global financial conditions have been tightening and deteriorating market liquidity is amplifying financial price movements, it said.

Markets are now pricing in moderate increases in policy rates and risk-on appetite has returned. “In India, supply responses in the economy are gaining strength,” the bulletin said.

The monetary policy committee (MPC) which sets the policy rates in India has hiked the key lending rate, repo, by 190 basis points so far in the current rate hike cycle to combat inflation.

Inflation, measures by the retail prices continues to be above the central bank's comfort zone, pausing policy challenges to the MPC. The inflation stayed above for three consecutive quarters forcing the rate panel to write a formal explanation to the Government.

RBI Bulletin noted that consumer price inflation reigns high across economies due to sustained cost push pressures from elevated food and energy prices and lingering pandemic-induced supply chain bottlenecks.

However, there are signs of inflation easing in a few economies, especially amongst Emerging Market Economies, the Bulletin said.