RBI Projects Economic Growth Rebound Amid Domestic Demand

The Reserve Bank of India (RBI) has projected a rebound in India's economic growth, driven by a resurgence in domestic demand and rural consumption, despite persistent food inflation that requires careful monitoring. The RBI's January Bulletin indicates a significant increase in high-frequency economic activity indicators for the latter half of FY2024-25, suggesting a potential implicit rise in real GDP growth. While headline inflation fell to a four-month low of 5.22% in December, food inflation remains a concern, prompting caution over second-order effects, such as rising rural wages. The revival in public capital expenditure on infrastructure is expected to bolster growth in key sectors. Additionally, the bank's now-cast model anticipates 6.2% growth in the upcoming quarter, although the economic environment remains complex due to external factors and exchange rate volatility. Analysts suggest that the RBI may consider rate cuts in response to slowing inflation, even as challenges persist from a depreciating rupee and fluctuating global market sentiments.