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Informist, Wednesday, Jun. 25, 2025

 

--RBI paper: High-frequency data for May shows resilient econ activity 

--CONTEXT: Remarks from RBI's monthly State of the Economy article 

--RBI paper: Domestic prices situation remains benign 

--RBI paper:Fincl conditions conducive for efficient rate cuts' transmission

 

NEW DELHI – The Indian economy remains resilient in the face of the high global economic, trade, and geopolitical uncertainty, the Reserve Bank of India's staff said in the monthly State of the Economy article released Wednesday. Domestic inflation also remains benign, while financials are conducive for efficient transmission of interest rate cuts to the credit market, the central bank said.

 

The RBI staff said that high-frequency indicators for May pointed to a resilient economic activity across industrial and services sectors. "Capacity utilisation by manufacturing firms remained above its long-period average," the RBI staff said in the article. The article, part of the RBI's monthly bulletin, does not represent the views of the central bank.

 

High-frequency indicators of aggregate demand suggested a pick-up in rural demand in May, given the strong performance of the agricultural sector. Urban demand, however, showed signs of moderation with passenger vehicle sales falling, especially in the entry-level segment, the RBI staff said.

 

India's GDP grew 7.4% in the quarter ended March, with full year growth at 6.5% for 2024-25 (Apr-Mar). RBI Governor Sanjay Malhotra on Jun. 6 said economic growth remains well below the aspirational rate of 7-8%. Inflation, on other hand, is under control with the May headline CPI inflation at a 75-month low of 2.8%.

 

The RBI's Monetary Policy Committee earlier this month lowered the repo rate by a larger-than-expected 50 basis points to support growth while inflation is seen staying in line with the central bank's medium-term target of 4%. The RBI also unexpectedly lowered the Cash Reserve Ratio by 100 bps to 3% of bank's net demand and time liabilities, to quicken transmission of lower interest rates.

 

The global economy continues to face several pressures. The outbreak of Iran-Israel conflict added to uncertainties to the global economy, which was already reeling from the twin shocks of trade policy uncertainties and a spike in geo-political tensions, the RBI staff said.

 

"Protracted trade policy uncertainties and rising trade barriers pose the risk of significantly scarring the global economy," the staff paper said. "The intensifying geopolitical tensions too may further debilitate the already weakened growth impulses."

 

As such, the trade policy outcomes in July, after the temporary tariff hiatus is over, and the future course of geopolitical events would likely shape the medium-term economic prospects, the staff paper said.  End

 

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

 

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