Softening of commodity prices and other costs boosted corporate performance: RBI Bulletin

The softening of commodity prices and other costs amidst strong revenues have boosted corporate performance in India, the Reserve Bank of India (RBI) said in its monthly bulletin released on Thursday.

Meanwhile, macroeconomic stability is being bolstered, with inflation moving into the tolerance band and leading indicators indicating that the current account deficit will narrow through the rest of 2022 and 2023, according to the report.

“A slowdown in growth with the possibility of recession in large swaths of the global economy has become the baseline assessment,” the RBI stated in its January bulletin.

“Emerging markets are appearing more resilient than in the year gone by, but their biggest risks in 2023 stem from US monetary policy and the US dollar,” it added.

The Reserve Bank of India’s 2023 monetary policy objective is to hold inflation within the mandated tolerance band and guide it towards the medium-term target of 4% by 2024, it said.

Recent data indicated “the first milestone of monetary policy is being passed – bringing inflation into the tolerance band”, the RBI said.

“The objective during 2023 is to tether inflation therein so that it aligns with the target by 2024 – the second milestone,” it added.Annual retail inflation rose 5.72% in December versus 5.88% in the previous month, dipping below 6% for a second straight month after having stayed above the central bank’s tolerance band of 2%-6% for 10 months.

In India, with inflation being brought within the RBI’s tolerance band, macroeconomic stability is getting bolstered and lead indicators are suggesting that the current account deficit (CAD) too will narrow through the rest of 2022 and 2023, it said.

The CAD had reached 4.4% of GDP in the July-September quarter of the current fiscal year ending March, its worst since the June quarter of 2013.

“In India, the softening of commodity prices and other costs amidst strong revenues appears to have boosted corporate performance,” the central bank said.

RBI said its model had pegged India’s economic growth at 4.5% for the October-December quarter of 2022/23.

“Fiscal consolidation is under way at central and sub-national levels, graduated to nurture the pace of the economic recovery,” it added.

The Reserve Bank of India (RBI) bought a net of $4.36 billion in the spot foreign exchange market in November, data released on Thursday showed.

The RBI said it purchased $22.28 billion and sold $17.92 billion in the spot market.

The Indian rupee strengthened 1.6% against the dollar in November, logging its biggest monthly rise since August 2021.

The central bank has been intervening in the spot and forwards market to curb exchange rate volatility, according to forex market participants. Despite the RBI’s regular interventions, the rupee dropped more than 11% against the dollar in 2022.

Apart from the net purchase in the spot market, the central bank’s forward dollar holdings jumped, according to the bulletin on Thursday. The RBI’s net forward dollar holdings stood at $8.49 billion as of end-November, compared with $241 million as of end-October.

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