India’s robust macroeconomic fundamentals continue to provide a cushion to the domestic economy, the country’s central bank said Tuesday in a monthly report.
Despite uncertainties surrounding global trade and Middle East tensions, the “domestic economy has demonstrated notable resilience to the ongoing global headwinds, characterized by buoyant domestic demand, and rising manufacturing and services activity,” the Reserve Bank of India said in its August bulletin.
The outlook has also brightened following a pickup in monsoon rains in July after a shortfall in June, improving the sowing of key crops, the central bank said. Stable core inflation, a measure that strips out volatile food and fuel prices from the headline, indicated that underlying price pressures have not broadened across the economy.
As a result, the strong economic momentum seen in the April-June quarter continued into July, “with most of the high-frequency indicators reflecting sustained manufacturing and services activity, and double-digit expansion in merchandise exports and imports,” the RBI said. Data due Monday may show the economy grew above 7% for the April-June quarter.
The central bank has kept interest rates unchanged at 5.25% so far this year as inflation has stayed near its medium-term target of 4%. The consumer price index climbed above the 4% mark in June for the first time in 17 months and rose to 4.45% in July, but remained well within the RBI’s target band of 2%-6%.
However, the comfort reflected in the dovish policy tone earlier this month contrasted with hawkish minutes released last week. The minutes showed members of the monetary policy committee, most notably Deputy Governor Poonam Gupta, discussing the possibility of raising rates later in the year.
At an event last week, Gupta painted an upbeat picture of the economy and said growth would be closer to 7% in the fiscal year through March, compared with the central bank’s projection of 6.7%. She also said 7.5% growth for the economy “is a given” over the long term.
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