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Economy poised for potentially stable high-growth phase: RBI MPC member | Financial News
Bhide noted that monsoon rains, which are expected to be normal this year, are a significant positive for growth as well as reducing food inflation.
“Our own general CPI inflation is marked by high levels of food inflation and a decline in this component of general inflation is crucial going forward,” he opined | Photo: ShutterstockPress Trust of India New Delhi
The Indian economy is poised for a potentially stable phase of high growth and is also in a strong position in the context of significant risks facing the country, Shashanka Bhide, member of the RBI’s monetary policy committee, said on Sunday.
Bhide further said that with income growth that would support domestic demand and additions to production or supply capacity reflected by high levels of investment spending in recent years, domestic economic activity is expected to maintain its momentum.
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“In terms of growth dynamics and inflation trajectories, the Indian economy is poised for a potentially stable phase of high growth.
“It is also in a strong position in the context of significant risks that we also face,” he told PTI.
The current official estimate of GDP growth in 2023-24 is 8.2 percent, accelerating from 7 percent the previous year.
Earlier this month, the Reserve Bank of India pegged the GDP growth rate for financial year 2025 at 7.2 percent.
Bhide noted that monsoon rains, which are expected to be normal this year, are a significant positive factor for growth as well as reducing food inflation.
While noting that improving global demand conditions are needed to stimulate external demand for goods and services, he said sizeable capital flows supporting investment reflect both supply-side efficiency and the high growth potential of the economy, both in terms of domestic demand and India’s exports.
Responding to a question on inflation, Bhide said the concerns are mainly in terms of the impact of risks from any adverse weather and climate events, disruptions in global supply chains due to international conflicts and the slow recovery of the global economy from the recent high inflation period.
“Our own global CPI inflation is marked by high levels of food inflation and a decline in this component of global inflation is crucial going forward,” he said.
Bhide said that while food inflation is at a high level, averaging around 8% between January and May 2024, overall CPI inflation has moderated to below 5% between March and May 2024.
“The prevailing policy rate, combined with the gradual decline in the inflation rate, means higher real interest rates, but the continued focus on keeping inflation in line with the target on a sustained basis is important at this time to support growth as well” , he said.
In its latest bi-monthly review earlier this month, the six-member monetary policy committee (MPC) of the Reserve Bank of India left the policy rate (repo rate) unchanged for the eighth consecutive time at 6.5 per cent.
The RBI has projected Consumer Price Index (CPI)-based retail inflation at 4.5 per cent for FY25, with 4.9 per cent in Q1 (April-June), 3.8 per cent in Q2, 4.6 per cent in Q3 and 4.5 per cent in Q4.
Retail inflation was 4.75% in May.
The RBI, which has been mandated to ensure that inflation remains at 4 percent (with a 2 percent margin on both sides), mainly takes the CPI into account while arriving at its monetary policy.