The ministry also said fuller transmission of monetary policy, which essentially means banks passing on central bank interest rate increases to consumers, could also reduce domestic demand. 2023-24
The Ministry of Finance said in its latest monthly report that although “inflationary pressures” have eased, persistent risks to growth and macroeconomic stability due to inflation remain. report. Economic Review October 2023.
The ministry also said fuller transmission of monetary policy, which essentially means banks passing on central bank interest rate increases to consumers, could also reduce domestic demand.
“While more than half of the current fiscal year was marked by positive developments in the economy, the full fiscal year is expected to end on schedule with strong and steady growth. macroeconomic. However, downside risks still exist. Inflation is one of the factors that makes the government and the RBI on high alert. Financial flows in the external sector also need constant monitoring as they impact the value of the rupee and the balance of payments. The report said a fuller monetary policy transmission could also reduce domestic demand.
Headline retail inflation fell to a four-month low of 4.87% in October. However, inflation fears persist. Last week, the RBI said in its monthly bulletin that while demand for festivals remains “strong” and consumer confidence “optimistic,” India has “a ways to go.” ” and “still not recovered” when it comes to inflation.
In addition, the ministry emphasized that the transmission of tightening monetary policy “may start to have an effect”, which could impact domestic demand. “Ahead of the cumulative 250 basis point (bps) increase in the policy repo rate, lending rates were increased by 187 bps for new loans and 105 bps for existing loans,” the statement said.
At the same time, the ministry said the holiday season had “further enhanced consumer demand”. “Even as accumulated savings and falling unemployment rates are the underlying drivers behind consumer demand, the wealth effect stems from rising house prices and stock market capitalization,” the report said. Increasing stock prices can also boost consumption. The ministry also highlighted that the central government is on track to achieve its fiscal deficit target for the current financial year thanks to strong revenue collection and prudent expenditure management.
“Continued dynamism in tax collections, supported by prudent expenditure management, has helped contain the budget deficit to below 40% of the budget forecast in the first half of this year. The government’s focus on capital spending also continued during the year, providing a boost to private investment. “The recent sharp and rapid decline in global crude oil prices also removes a potentially significant source of impact on public finances,” he said. On the growth front, the ministry said India’s growth experience during 2023-24 is expected to continue to be a positive outlier compared to other major economies.
“The government’s sustained investment efforts, healthy corporate profits and reduced bank bad debt will likely help investment continue to be vibrant despite high input costs. Indian exports are also expected to perform well, thanks to strong services exports, he said.
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