Revival in rural spending pushing demand conditions: RBI bulletin

India's natural rate of interest now at 1.4%-1.9%, says RBI bulletin

The second quarter of 2024-25 has begun with signs of quickening momentum in the economy and the revival of rural spending has turned out to be a bright spot in the evolution of demand conditions, the Reserve Bank of India (RBI) said in its monthly Bulletin on Thursday.

Global economic activity appears to be strengthening across advanced economies (AEs) and emerging market economies (EMEs) and global trade in goods and services is gathering momentum, said an article on 'State of Economy' published in the RBI's Bulletin.

RBI Bulletin highlighted that India's natural rate of interest has moved higher in the post-pandemic era, driven by the growth of potential output.

"The estimate of the natural rate for Q4 2023-24 is at 1.4-1.9 per cent as compared with our earlier estimate of 0.8-1.0 per cent for Q3 2021-22," the RBI said.

The natural rate of interest is an equilibrium rate where growth is close to potential, alongside stable inflation.

It further said monetary policy divergence is setting the tone for global economic developments.

"In India, the second quarter of 2024-25 has begun with signs of quickening momentum in the economy," said the article.

The improvement in the outlook for agriculture and the revival of rural spending have turned out to be the bright spots in the evolution of demand conditions, it added.

The article also noted that consumer price inflation ticked up in June 2024 after three consecutive months of moderation as a broad flare-up in vegetable prices halted the overall disinflation that had been underway.

The central bank, however, said the views expressed in the Bulletin article are of the authors and do not represent the views of the Reserve Bank of India.