Consumers breathe a sigh of relief as retail inflation, measured by the Consumer Price Index (CPI), dips to 4.9% in March, following two months of hovering near 5.1%.
In its latest bulletin, the Reserve Bank of India (RBI) has highlighted extreme weather events as a potential inflationary risk. This news offers a glimmer of relief to consumers, as retail inflation, measured by the Consumer Price Index (CPI), has softened to 4.9% in March, down from its recent plateau around 5.1% over the past two months.
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The RBI, however, cautioned that this positive trend might not last. The bulletin raises worries about extreme weather conditions disrupting agricultural production and supply chains, potentially causing price increases for essential goods. Additionally, ongoing geopolitical tensions could keep crude oil prices unpredictable, adding to inflationary pressures.
The Reserve Bank, which closely monitors CPI for its bi-monthly monetary policy decisions, has held the key interest rate steady at 6.5% since February 2023, citing inflation worries. An article in the Bulletin titled ‘State of the Economy’ observed that global growth persisted in the first quarter of 2024, signaling a favorable outlook for international trade.
Treasury yields and mortgage rates are on the upswing in major economies as the anticipation of interest rate reductions dwindles.
“In India, the stage is set for a continuation of the upward trajectory in real GDP growth, supported by robust investment demand and optimistic business and consumer sentiments,” noting the correlation with CPI.
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The RBI emphasized that the viewpoints articulated in the Bulletin article are those of the authors and do not necessarily represent the stance of the Reserve Bank of India.
As per the monthly bulletin unveiled by the RBI, the central bank acquired a net total of $8.56 billion in the spot foreign exchange market in February, with no dollar sales recorded during the month. In contrast, in January, the RBI had net purchases amounting to $1.95 billion in the spot market. These actions coincide with movements in the CPI.
In February, the Indian rupee exhibited a 0.2% appreciation against the dollar, fluctuating between 82.8225 and 83.1150 units. By the close of February, the RBI’s net outstanding forward purchase stood at $9.69 billion, slightly lower than the $9.97 billion recorded the preceding month. These currency dynamics correspond with changes in the Consumer Price Index (CPI).
To manage exchange rate fluctuations and uphold stability, the central bank engages in interventions across both spot and forward markets. These measures are implemented in tandem with monitoring changes in the Consumer Price Index (CPI) to ensure overall economic stability.