MUMBAI: Extreme weather conditions could pose upside risks to inflation, along with prolonged geopolitical tensions that may keep crude oil prices volatile, the Reserve Bank said in its April Bulletin on Tuesday.
In the first monetary policy review earlier this month, the RRI’s monetary policy committee (MPC) had warned of rising food prices as the main reason for the sticky inflation, forcing it keep the policy and policy rates unchanged.
The Met department had earlier said the country could face heatwave conditions which would upend prices which of late has started trending down. The retail inflation has eased to 4.9 percent in March after averaging 5.1 percent in the preceding two months.
The Reserve Bank, which mainly factors in CPI while arriving at its bi-monthly monetary policy, has kept the key interest rate unchanged at 6.5% since February 2023, citing concerns on the inflation front primarily led by food items.
The central bank economists further noted that global growth momentum has been sustained in the first quarter of 2024, and the outlook for world trade is turning positive now despite the tension in West Asia. “Domestic growth conditions are shaping up for an extension of a trend upshift in real GDP growth, backed by strong investment demand and upbeat business and consumer sentiments,” the article said. In the April policy the central bank had maintained 7% growth forecast for the current fiscal.
Services exports
The RBI also said that the country’s services exports in dollar terms have grown at a robust compound annual growth rate (Cagr) of over 14% over the past 30 years—between 1993 and 2022, significantly higher than the merchandise exports growth of 10.7%, as well as world services export growth of 6.8%, taking the share in world exports up by more than 8 times, from 0.5% in 1993 to 4.3% in 2022, according to an RBI paper.
As per commerce ministry data, services exports rose to a record $339.62 billion in FY24 up 4.4% over $325.33 billion in FY23, while merchandise shipments declined by 3.11% to $437.06 billion from $451.07 billion in FY23, taking the total earnings from exports to a record $776.68 billion despite global headwinds, helping narrow the trade deficit by 35.77 % from $121.62 billion in FY23 to $78.12 billion in FY24.