Domestic Economic Growth Picks Up Pace, Private Consumption Supported

The underlying trend of economic growth remained strong in India, Budesbank, the German central bank noted in its commentary on emerging economies in a monthly update. It appears that overall economic growth picked up pace again at the end of the year after the annual growth rate had fallen slightly in the third quarter to 7.1%. This is suggested by at least some short-term indicators. One of these, the Purchasing Managers' Index for the manufacturing sector, rose markedly in the fourth quarter, bucking the global trend. Industrial production likewise recorded distinct growth.

Private consumption is likely to have been boosted by food prices, which fell last quarter, as well as decelerating growth in energy prices. For these reasons, year-on-year consumer price inflation abated to 2.6% in the fourth quarter despite a persistently high rate of core inflation. This meant that the rate of inflation was close to the lower boundary of the target corridor set by the Reserve Bank of India, which refrained from any further tightening of monetary policy. In fact, the central bank lowered its policy rate in February by 25 basis points to 6.25%, the Budesbank noted further.

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