With headline inflation beginning to show signs of easing, the domestic macroeconomic outlook can best be characterised as resilient but sensitive to formidable global headwinds, according to an article in RBI’s latest monthly bulletin.
“GDP data for Q2 (July-September):2022- 23 will be available by the end of this month; based on high frequency indicators, our nowcasting and full information models peg real GDP growth in Q2 between 6.1 and 6.3 per cent,” per the article “State of the Economy”.
If this is realised, India is on course for a growth rate of about seven per cent in 2022-23, opined the authors, including RBI Deputy Governor MD Patra.
In Q3, supply responses in the economy are gaining strength, they added
As the pandemic is on course to become an endemic and as the recovery gathers strength and traction, India is arriving on the world stage, per the article.
Global economy
The authors (26 RBI officials) observed that the outlook for the global economy remains clouded with downside risks.
However, they underscored that global financial conditions have been tightening and deteriorating market liquidity is amplifying financial price movements. Markets are now pricing in moderate increases in policy rates and risk-on appetite has returned
The article noted that a relief rally (equity markets worldwide clawed back recent losses – the MSCI world equity index rose by 6.3 per cent during the same period, with the EME sub-index up 8.9 per cent) swept across the world on November 11 following the release of US consumer prices for October, lifting many boats in its swell.
“If these data have any lead information content, the hard landing that is widely feared may turn out to be less painful. The point is to seize the opportunity provided by this turn in the ebbs and flows of global finance.
“...There is a turn in the thinking of central banks – some of them have slowed rate increases, and indicated that the end of rate raising is in sight,”the RBI officials said.
They observed that some of the central banks are delivering ‘75s’ (interest rate hikes) but assuaging them with dovish pivot after its 75 bps hike.
Lags in the transmission of monetary policy create the risk that they may ease off too soon as they see the outlook becoming darker, the authors said.