Broader economic activity in India has remained resilient and poised to expand further with domestic demand accelerating as the contact-intensive sectors are experiencing a bounce-back, according to the RBI Bulletin – October 2022. It added that headline inflation is set to ease from its September high, albeit stubbornly, on the back of easing momentum and favourable base effects.
“Aggressive and synchronised monetary tightening has further weakened global economic prospects as financial markets sold off, investors took fright and jettisoned risky assets. In India, broader economic activity has remained resilient and poised to expand further with domestic demand accelerating as the contact-intensive sectors are experiencing a bounce-back. Robust credit growth and fortified corporate and bank balance sheets provide further strength to the economy. Headline inflation is set to ease from its September high, albeit stubbornly, on the back of easing momentum and favourable base effects," the RBI said.
India’s retail inflation accelerated to 7.41 per cent in September, compared with 7 per cent in the previous month. September registered the five-month high level amid a surge in food prices.
It is the ninth month that the Consumer Price Index (CPI)-based inflation has remained above the RBI’s upper tolerance limit of 6 per cent, and has risen despite the central bank’s efforts to curb it. The retail inflation had stood at 7.04 per cent in May, 7.01 per cent in June, 6.71 per cent in July, 7 per cent in August and now 7.41 per cent in September.
In the Bulletin, the RBI said big techs are making forays into the financial domain bringing with them benefits of greater financial inclusion, more efficient operations and lower transaction costs. However, they also pose the risk of stifling competition, endangering data privacy issues, and constraining operational resilience for regulated entities, with ramifications for financial stability.
“Regulators across the globe are coming up with regulatory frameworks such as imposing a holding company structure on financial-service subsidiaries of bigtechs, prescribing requirements of activity-specific licenses, data protection, security, equal treatment of third-party applications, data portability, etc., to address the challenges posed by the entry of big techs in finance," the central bank said.
It also analysed the growth of debt mutual funds (MFs) in India, taking into account changes over time in the size and portfolio of debt MFs, investor profile and determinants of flows to debt MFs. “The study finds that past value of returns contains significant information about current flows into debt MFs but not vice versa. Credit spreads are found to be inversely related to flows and CPI inflation is found to be inversely associated with returns."
The household credit to GDP ratio has increased in the recent period. It is negatively associated with trends in weighted average lending interest rates, working-age population, inflation and banks’ NPAs relating to credit to households, and positively associated with deposit-to-GDP ratio and household expenditure, it added.
“Based on the estimated vulnerability scores these borrowings are assessed to be sustainable during the last three decades despite the impact of multiple shocks including the pandemic," the RBI said.
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