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Informist, Tuesday, Oct. 22, 2024

 

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--RBI Patra: Policy endeavour has been to build up external sector soundness
--CONTEXT: RBI Patra's speech at New York Fed Central Banking Seminar
--RBI Patra:Divergent global monetary policy hit India equity mildly, FX more
--RBI Patra: Our forecast shows price pressures to persist in Oct, Nov
--RBI Patra: CPI to realign with target from Dec, remain aligned in FY26
--RBI Patra: Strong likelihood India growth to revert to 8% trend post FY26
--RBI Patra: Cyclical correction in GDP in FY25, FY26 from COVID rebound
--RBI Patra: India FX reserves equivalent or close to 12 months of imports
--RBI Patra: Intervene in FX mkt without any view on exchange rate level

 

NEW DELHI – India's GDP growth is likely to return to the post-pandemic trend of 8?ter 2025-26 (Apr-Mar), Reserve Bank of India Deputy Governor Michael Patra has said. Noting that the decline in growth to 7.2% this finanial year and 7.0% in FY26--as per the RBI's forecast--was a "cyclical correction to the rebound from the pandemic", Patra said 2021 to 2024 saw the formation of a "new growth trajectory" where the economy expanded by 8% on average.

 

Patra was speaking in New York on Monday at a central banking seminar organised by the Federal Reserve Bank of New York. His speech was uploaded on the RBI's website on Tuesday.

 

After contracting 5.8% in FY21, the Indian economy rebounded sharply from the pandemic to grow 8.3% on average in the three years starting FY22, aided by a favourable base. Growth has since fallen sharply, with data released in August showing GDP increased 6.7% in the first quarter of FY25, the lowest in five quarters.

 

While the RBI has since then retained its full-year forecast at 7.2%, economists have warned growth could be lower than the Indian central bank's projection. Even economists from within the RBI seem to think so, with the central bank's monthly State of the Economy article, released Monday, saying that high-frequency data seemed to suggest GDP growth in Jul-Sept may come in at 6.8%, 20 basis points lower than the RBI's official forecast.

 

The State of the Economy article--which includes Patra as one of its co-authors--does not reflect the central bank's official stance.

 

On prices, Patra reiterated that the uptick in headline retail inflation "will persist in October and November" before realigning with the medium-term target of 4% starting December, and remain aligned in FY26.

 

CPI inflation jumped more than expected in September to a nine-month high of 5.49% from 3.65% in August. The RBI expects inflation to average 4.8% in Oct-Dec, before easing to 4.2% in Jan-Mar.

 

In terms of risks to the Indian economy from abroad, Patra said the RBI's endeavour has been to build "external sector soundness", with the central bank making use of the strong foreign investor interest in India to add to its foreign exchange reserves. As on Oct. 11, India's foreign exchange reserves stood at $690.43 billion after they posted their largest weekly decline in nearly two and a half years. Patra said in his speech that the reserves were close to 12 months of India's imports.

 

The central bank deputy also reiterated that the RBI intervenes in the foreign exchange market only to "ensure adequate liquidity and minimise volatility so as to preserve financial stability, but without any view on the level of the exchange rate".  End

 

US$1 = INR 84.07

 

Reported by Siddharth Upasani

Edited by Avishek Dutta

 

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