Growth indicators suggest economic revival: RBI

Reserve Bank of India (RBI) Deputy Governor Dr. Viral Acharya said growth indicators have suggested that economic revival is taking place on sound footing.

Acharya's statement comes after the Reserve Bank on Wednesday hiked the repo rate and reverse repo rate to 6.25 percent and 6 percent respectively.

As per the top RBI official, inflationary tendencies in food articles has been benign, with lower-than-usual seasonal increase in vegetable prices.

"Inflation, excluding food and fuel, has hardened sharply. Food inflation is benign, with a delay in typical seasonal pickup of prices. This has put some softening into short-term inflation rates. However, our aim is to maintain headline inflation of four percent," he said at a press conference.

In terms of liquidity, Acharya said redemption of market stabilisation securities and normal bank balances in March has helped maintain surplus liquidity. However, the economy, he said, has seen a higher increase in currency circulation, thus pushing liquidity into the neutral zone.

"June has been in comfortable surplus liquidity driven by increasing government spending. Expansion of currency in circulation has been above predictions. Surplus liquidity absorbed under the liquidity adjustment facility on a daily net average basis declined to Rs.142 billion in May. Trends will be observed in the coming weeks," he added.

Apart from hike in repo and reverse repo rates, the central bank's six-member Monetary Policy Committee (MPC) said estimated GDP growth is projected in the range of 7.5-7.6 percent in H1 and 7.3-7.4 percent in H2, with risks evenly balanced.

As per the policy statement, retail inflation rose sharply to 4.6 per cent in April, driven mainly by a significant increase in inflation excluding food and fuel. Excluding the estimated impact of an increase in house rent allowances (HRAs) for central government employees, headline inflation was at 4.2 per cent in April, up from 3.9 per cent in March. While food inflation moderated for the fourth successive month due to vegetable prices, inflation increased in respect of cereals, fruits, prepared meals, meat and fish.

The statement also highlighted that fuel group inflation had declined for the fifth month in a row in April mainly on account of a fall in the inflation of liquefied petroleum gas in line with international prices, and electricity. However, inflation in other major items of fuel such as firewood and chips, dung cake, kerosene and coal inched up.

In the transport and communication sub-group, inflation accelerated due to the firming up of international crude oil prices, even though the domestic pass-through to petrol and diesel was incomplete. Inflation also picked up in clothing, household goods and services, health, recreation, education, and personal care and effects.