Economy is losing steam, cautions RBI

THE RESERVE BANK of India (RBI) on Friday expressed concerns that the economy might be losing steam, pointing out that high frequency indicators are beginning to reflect some loss of momentum. Moreover, high global prices of crude oil, metals and fertilisers had already impacted the terms of trade, resulting in wider trade and current account deficits, the central bank observed.

In its annual report for 2021-22, released on Friday, the RBI also drew attention to the subdued outlook for the global economy as projected by the IMF.

The global recovery is expected to suffer a significant loss of momentum in 2022. In particular, the RBI highlighted that the growth in global trade volumes was expected to halve from 10.1% in 2021, primarily due to the moderation in merchandise trade even as services are expected to remain subdued and slow even further in 2023. "Policy trade-offs are becoming increasingly complex going forward and tail risks, including stagflation, loom large in several countries," the report said.

The central bank also dwelt on upside risks to inflation in India, should crude oil prices remain over $100 per barrel, as second-round effects across manufacturing and services prices re-ignite.