Disinflation may pave way for interest rate reduction: RBI officials

The pace of global growth may slow further in 2024 while disinflation at varying pace in different geographies may pave the way for interest rate reductions, Reserve Bank of India (RBI) officials led by Deputy Governor Michael D Patra said in the ‘State of the Economy’ article in the December 2023 edition of the RBI Bulletin which was published on Wednesday.

The pace of global growth may slow further in 2024 while disinflation at varying pace in different geographies may pave the way for interest rate reductions, Reserve Bank of India (RBI) officials led by Deputy Governor Michael D Patra said in the ‘State of the Economy’ article in the December 2023 edition of the RBI Bulletin which was published on Wednesday.

In India, the broad-based strengthening of economic activity that was under way would likely be sustained by easing input costs and corporate profitability, they wrote in the article.

Stating that CPI inflation rose to 5.6% in November as the recurrence of food price spikes punctured a brief respite in September and October, they said CPI inflation would ease to 4.6%in the first three quarters of 2024-25 and domestic financial markets had been lifted by the abiding strength of the real economy.

The RBI said the views expressed in the Bulletin articles are of the authors and do not represent its views.

“Despite significant global headwinds, the Indian economy remained the fastest growing major economy in 2023. The outlook is one of cautious optimism as consumer confidence remains positive and perceptions about current income turned up in the RBI’s latest survey of households in November 2023,” they wrote.

Emphasising that supply chain pressures in India remained below historical average levels, although they had edged up in recent months, they said RBI’s economic activity index (EAI) nowcasts GDP growth for Q3:2023-24 at 6.7%.

“Looking ahead, projections from our Dynamic Stochastic General Equilibrium (DSGE) model for the Indian economy, which captures the dynamic interactions between various agents in the economy as well as their response to shocks, show that the growth is likely to be sustained in H2:2023-24 and 2024-25 despite some moderation,” they observed.