Rural spending awakens from slumber

A general increase in vegetable prices interrupted the overall disinflation trend

MUMBAI: The Reserve Bank of India (RBI) stated in its monthly Bulletin on Thursday that the second quarter of 2024-25 has commenced with signs of accelerating momentum in the economy, highlighting the revival of rural spending as a positive development in demand conditions.

The Bulletin also emphasized global economic improvements, noting enhanced activity in both advanced economies (AEs) and emerging market economies (EMEs), along with a resurgence in global trade in goods and services.

According to the RBI, India’s natural rate of interest has risen in the post-pandemic period due to growth in potential output. “The estimate of the natural rate for Q4 2023-24 stands at 1.4-1.9 per cent, compared to our earlier estimate of 0.8-1.0 per cent for Q3 2021-22,” the RBI reported. This rate represents an equilibrium where growth aligns closely with potential alongside stable inflation.

The article also highlighted the impact of monetary policy divergence on global economic trends. In the Indian context, it underscored the bright spots of improved agricultural prospects and the resurgence in rural spending as key factors driving demand dynamics.

However, the RBI clarified that the views expressed in the Bulletin article belong solely to the authors and do not necessarily reflect the official stance of the Reserve Bank of India.

The article further noted a slight uptick in consumer price inflation in June 2024 following three consecutive months of moderation, attributed to a general increase in vegetable prices that interrupted the overall disinflation trend.