Extreme weather, geopolitical issues pose threat to India’s inflation: RBI bulletin

Extreme weather events and geopolitical tensions may threaten India’s inflation path, despite current growth trends, warns RBI bulletin.

Extreme weather events along with prolonged geopolitical tensions could pose a risk to India’s inflation trajectory, even as growth in the South Asian nation exhibits an uptrend, the Reserve Bank of India (RBI) said in its latest bulletin on Tuesday.

”…food price pressures have been interrupting the ongoing disinflation process even as shocks from adverse climate events and geopolitical tensions add uncertainties to the outlook,” the RBI staff said in a ’State of the Economy’ article.

India is likely to experience more heat-wave days than normal between April and June, the country’s weather office said earlier this month.

While alignment with the inflation target is gradually occurring, incoming data will provide greater clarity and confidence on the disinflation path, the RBI said.

India’s retail inflation eased to a five-month low of 4.85% in March from 5.09% in the previous month.

The central bank, which has kept policy rates unchanged for the last seven meetings, seeks to ensure inflation aligns durably and sustainably to the 4% target. Retail inflation is seen averaging at 4.5% in 2024-25, the central bank estimates.

Meanwhile, conditions are shaping up for an extension of a trend upshift in real gross domestic product growth in India, backed by strong investment demand and upbeat business and consumer sentiments, the RBI said.

So far, ”capital deepening” is powering the step-up in the India’s growth trajectory, led by sustained public investment, and supported by productivity improvements, it said.

India’s economy grew at a quicker-than-expected 8.4% in October-December, its fastest pace in one-and-a-half years.

Comfortable foreign exchange reserves and a return of capital inflows are expected to contribute to stability in India’s foreign exchange market, according to a separate article in the bulletin.