On Rupee, co-author of RBI Deputy Governor Michael Patra, the report states that close and continuous monitoring of the widening trade deficit and portfolio outflows is required. This is despite strong reserve buffers, moderate external debt and a “fairly valued exchange rate that has weakened less than many of its peers given the monotonous strengthening of the US dollar”. Data in the RBI Bulletin showed that the RBI bought $10 billion worth of foreign exchange and sold $8.1 billion in May 2022, resulting in a net purchase of $2 billion in May.
“The Indian economy remains resilient in the face of tremendous global headwinds. Domino effects of geopolitical spillovers are evident in several sectors, slowing the pace of the recovery. Despite this overwhelming shock, there are sparks in the wind that are igniting the economy’s innate strength and setting it on course to become the world’s fastest-growing economy,” the report said.
According to the report, the biggest source of relief for the economy is inflation, which is past its recent peak, albeit still at elevated levels. “If the moderation in commodity prices seen over the past few weeks continues alongside the easing of supply chain pressures, the worst of the recent inflationary surge will be left behind, allowing the Indian economy to escape the global inflation trap and enjoy the fruits of the exuberant supply-side response that taking place,” the report said.
The RBI’s recent hike in interest rates has been passed on to lenders, but depositors are yet to see the full transmission. According to the state economic reportDepositors also get higher interest rates.
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