Above normal monsoon in 2024 can ease pressure on food prices, says RBI

The projection of an above-normal southwest monsoon in 2024 augurs well for the upcoming kharif season and can ease pressures on food prices, according to the financial stability report by the Reserve Bank of India. The report said that inflation is showing signs of moderation, albeit unevenly, while fiscal consolidation progresses.

The headline inflation fell to a 12-month low of 4.75 per cent in May, down from 4.83 per cent in April. Despite this decline, food inflation remained high for the fourth consecutive month, exceeding 8.5 per cent in May. Core inflation, which excludes food and fuel prices, fell to 3 per cent in May, marking its lowest level in the current Consumer Price Index series.

 

On the other hand, real gross domestic product (GDP) growth is advancing steadily, on the back of macroeconomic and financial stability, the report highlighted. The external sector is improving despite global spillovers. Domestically, the financial system remains robust with strong capital and liquidity ratios, decreasing asset impairment levels, and increasing profitability.

The Monetary Policy Committee (MPC) had revised the growth forecast for the financial year 2024-2025 (FY25) to 7.2 per cent from the earlier projection of 7 per cent. Quarterly, the growth in Q1 was projected at 7.3 per cent, Q2 at 7.2 per cent, Q3 at 7.3 per cent, and Q4 at 7.2 per cent, against the previous projections of 7.1 per cent, 6.9 per cent, 7 per cent, and 7 per cent respectively.

The report said that in the current economic landscape, several positive factors are contributing to a promising outlook. Domestic demand is on the rise, bolstered by robust business optimism that outshines many other global economies.

The government's sustained emphasis on capital expenditure is expected to catalyse additional private investment through multiplier effects across various sectors. Corporations are strategically leveraging their high profits to bolster investible resources while reducing financial leverage, enhancing overall economic stability. Moreover, the real estate sector is experiencing revitalisation, complemented by substantial public investments in infrastructure, which is driving a notable uptick in construction activities. Additionally, the increasing exports of services indicate a buoyant international market and hold optimistic growth prospects. The deepening credit growth, facilitated by healthier bank balance sheets, further supports the momentum of economic expansion.

The report further said that potential risks to this outlook include a global economic slowdown and spillover effects, geopolitical tensions impacting supply conditions and commodity prices, economic slack in rural areas, and uncertainties related to weather conditions.