Inflation Outlook For Near Term More Gentle Than Anticipated Despite US Trade Policy Uncertainties: RBI

New Delhi: Persisting uncertainties related to the US trade policies pose downside risk to the overall demand in the Indian economy while the inflation outlook for the near term has become more benign than anticipated earlier, RBI said in its latest bulletin on Thursday.

In the August bulletin, the Reserve Bank of India (RBI) also said that India's sovereign rating upgrade by S&P bodes well for capital inflows and sovereign yields, going forward.

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The US has imposed a steep 50 per cent tariff on Indian goods. According to the central bank, favourable rainfall and temperature conditions bode well for the kharif agriculture season and an increase in real rural wages may support rural demand in the second half of the financial year.

"Coupled with the benign financial conditions, ongoing transmission of rate cuts, supportive fiscal measures and rising household optimism, the environment is conducive for holding up aggregate demand. "On the other hand, persisting uncertainties related to India-US trade policies continue to pose downside risk," it noted.

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Further, RBI said the inflation outlook for the near term has become more benign than anticipated earlier. "Headline inflation, driven by muted food price pressures supported by favourable base effects, are likely to soften further below the 4 per cent target in Q2 before inching up in the last quarter of the financial year.

"Overall, the average headline inflation this year is expected to remain significantly below the target. Monetary policy, going forward, would continue to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path," the bulletin said. In July, the central bank said domestic economic activity remained mixed across sectors and the timely progress of monsoon has boosted kharif sowing.

While industrial activity remained subdued, manufacturing sector expanded along with services sector sustaining the growth momentum. Headline inflation fell for the ninth consecutive month in July. Financial conditions remained congenial and supportive of domestic economic activity.

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