RBI Bulletin - June 2022 - आरबीआय - Reserve Bank of India
RBI Bulletin - June 2022
The Reserve Bank of India today released the June 2022 issue of its monthly Bulletin. The Bulletin includes Monetary Policy Statement, 2022-23, Resolution of the Monetary Policy Committee (MPC) June 8, 2022, two Speeches, nine Articles and Current Statistics. The nine articles are: I. State of the Economy; II. What is the Yield Curve Telling Us About the Economy? III. Capital Flows at Risk: India’s Experience IV. Revisiting India’s Natural Rate of Interest; V. Central Bank Balance Sheet Size and Inflation: Unravelling the Fuzzy Dynamics; VI. State Finances: A Risk Analysis; VII. Freight Costs of India’s Trade; VIII. Industrial Revolution 4.0: Will it be different this time for India? and IX. Nowcasting Global Growth. I. State of the Economy Downside risks to global growth have accentuated with the risk of commodity price driven inflation turning more generalised. Despite global headwinds, domestic macroeconomic conditions continued to strengthen. With a growth rate of 8.7 per cent in 2021-22, India’s gross domestic product (GDP) surpassed its pre-pandemic (2019-20) level by 1.5 per cent and the recovery remains robust in 2022-23 so far. The y-o-y Consumer Price Index (CPI) inflation print for May was lower than the previous month after seven months of continuous rise. II. What is the Yield Curve Telling Us About the Economy? The government securities yield curve is widely regarded as a valuable predictor of future macroeconomic developments. Following the dynamic latent factor approach suitably modified to fit Indian conditions, this article uses a state space yield-macro model to show that in contrast to advanced economies, it is the level and curvature of the yield curve rather than its slope that contain useful information on market expectations about economic prospects and inflation expectations. Highlights:
III. Capital Flows at Risk: India’s Experience With the spate of emerging market crises since the 1990s and the experience with the global financial crisis and its aftermath, attention has turned from the benefits associated with capital flows to their consequences such as accentuating financial vulnerabilities, aggravating macroeconomic instability and spreading contagion. This paper draws on recent developments in the ‘capital flows at risk’ framework which estimates risks to capital flows conditional upon various pull and push factors so as to assess the effect of a range of risk factors. Highlights:
IV. Revisiting India’s Natural Rate of Interest Natural rate represents an equilibrium real that is realised when inflation is aligned to the target and output is at or close to its potential level. Post-pandemic, several determinants of the natural rate have exhibited distinct shifts, with persisting uncertainty about whether and over what time frame they may normalise. It has been argued in the literature that the trajectory of potential growth, which is a key determinant of the natural rate, may rise due to large increase in public spending on infrastructure, digitisation, push to innovation from start-ups and new business opportunities, but it may also decline due to the scarring effects of the pandemic on education, labour market, deglobalisation and market concentration. After a major crisis, literature suggests that natural rate generally declines, and stays depressed for long. This article revisits the estimate of natural rate for India against this backdrop. Highlights:
V. Central Bank Balance Sheet Size and Inflation: Unravelling the Fuzzy Dynamics The global surge in inflation since the second half of 2021 has reignited interest in assessing the role of post-pandemic balance sheet policies of central banks (or unconventional policies) in fuelling inflation. In India also, concerns have been expressed surrounding the post-COVID growth in monetary aggregates (i.e., reserve money and broad money) as a reason behind the subsequent high inflation. This article examines the relationship between RBI’s balance sheet size, money supply and CPI inflation, while highlighting the critical role of crisis time large changes in velocity of money and money multiplier in influencing the relationship. Highlights:
VI. State Finances: A Risk Analysis The sovereign debt crisis in India’s neighbourhood is a stark reminder of the importance of bringing government finances on a sustainable path after the prolonged COVID crisis. In India, sub-national finances have deteriorated significantly in 2020-21 though there is considerable variation in the vulnerability of individual states. Against this backdrop, this article attempts to put the spotlight on fiscal risks confronting state governments in India, with emphasis on the heavily indebted states. Highlights:
VII. Freight Costs of India’s Trade The container shipping industry that forms a significant part of global supply chain logistics, came under severe pressure when the world trade recovered swiftly from the initial impact of the pandemic, which was reflected in the surge in freight cost across all transoceanic trade routes. In this backdrop, the study explores the greater role of freight charges in India’s imports and exports in the recent period and examines its role in exacerbating inflation dynamics. Highlights:
VIII. Industrial Revolution 4.0: Will it be Different This Time for India? Technological changes in the last decade have revolutionised the organisation of industrial production. Industry 4.0 which integrates new technologies – like Internet of Things (IoT), cloud computing and analytics, artificial intelligence and machine learning — into manufacturing production processes and operations, has ushered in a new era of ‘smart manufacturing’. Having been sidelined during the previous industrial revolutions, the article explores India’s readiness in adapting to the technological developments and examines the corresponding prerequisites to benefit from IR-4. Highlights:
IX. Nowcasting Global Growth Incoming data suggests that global growth is losing steam in the first and second quarter of 2022. This article attempts to bridge the gap between the availability of and the arrival of global GDP estimates and higher frequency indicators of global economic activity. Highlights:
(Yogesh Dayal) Press Release: 2022-2023/378 |