RBI Bulletin: GDP growth, decline in inflation and other key highlights

The Reserve Bank bulletin has released some of its key findings on the state of the economy, weather events, Opec oil supply, financial literacy, and retail credit trends

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The Reserve Bank of India (RBI)'s bulletin released on Friday shows that the gross domestic product (GDP) has increased as compared to other major economies during the first quarter of 2023 and even inflation has gone down in the month of May.

The RBI has published its June 2023 Bulletin, highlighting findings from five key articles including the current state of the economy, the impact of weather on growth and inflation, the influence of the Organisation of Petroleum Exporting Countries (Opec) oil supply announcements on the domestic economy, financial literacy, and the latest trends in retail credit.

GDP growth and drop in inflation

The global economy has continued to exhibit a growth momentum in the second quarter of 2023, although many countries are experiencing diverging paths.

In India, the GDP grew by 6.1 per cent in the fourth quarter of financial year 2023 (Q4FY23), surpassing many major economies worldwide.

Furthermore, India's consumer price index (CPI)-based inflation dropped to a 25-month low of 4.3 per cent in May 2023. A positive sign for households.

Additionally, the manufacturing sector has also witnessed a resurgence in net profits with credit growth shifting towards more sustainable sources, and the Indian rupee remaining comparatively stable next to emerging market currencies.

Weather event impact on commodity production and prices

Weather has been a major concern in recent months in regards to the effects it has had on crop production and foodgrain prices. Weather events such as El Nino, La Nina, and the Indian Ocean Dipole (IOD) impact rainfall patterns and consequently, their effects on growth and inflation vis-a-vis crop production.

El Nino years generally result in lower agricultural growth, while La Nina years often lead to better agricultural performance. Positive IOD years tend to have higher average rainfall, regardless of El Nino Southern Oscillation (ENSO) conditions.

According to ‘Weather Events and their Impact on Growth and Inflation in India’ report, food inflation fluctuations are more closely associated with IOD than ENSO. This means negative IOD years typically experience higher median food inflation compared to neutral or positive IOD years. Interestingly, median food inflation is usually lower in El Nino years, except for drought years like 2009.

Therefore, El Nino may not be a threat to macroeconomics stability in the country and it is important to be vigilant of other factors such as IOD oscillations, local supply chain disruptions caused by acute climate events, and global commodity prices.

Impact of Opec oil supply announcements

This article examines the repercussions of Opec oil supply-related announcements on the Indian economy and financial markets.

Data from the ‘Opec Oil Supply Announcements: An Assessment of Impact on the Indian Economy’ report revealed increased volatility in domestic crude oil prices, the exchange rate of the Indian Rupee, equity prices of oil and gas sector firms, and sovereign bond yields around Opec announcements.

The empirical evidence of the study also indicated that oil supply-related news can rapidly increase domestic consumer prices while simultaneously, temporarily, decline economic output.

Synchronising financial knowledge with financial attitude

The ‘Financial Literacy in India: Insights from a Field Survey’ reviewed the current financial literacy in the country.

Conducted at the Numaish- All India Industrial Exhibition in Hyderabad, the study assessed financial literacy levels among different target groups, including daily wage workers and laborers.

The study found that daily wage workers and labourers displayed weaker financial behaviour despite having better financial knowledge.

The study recommended shifting the focus of financial education towards building the right “financial attitude,” along with knowledge.

Role of retail in bank credit growth

Retail loans made a significant contribution to overall credit growth in the country, even surpassing industrial and services sector credit during and after the coronavirus period.

The analysis of retail credit cycles suggests that the ongoing "retail shift" is cyclical rather than permanent.

Among various categories of retail credit, housing loans exhibit the highest sensitivity to interest rates and the asset quality of banks, followed by vehicle loans and unsecured loans.