RBI says environment conducive for holding up aggregate demand

Reserve Bank of India (RBI) stated in its latest monthly update that favourable rainfall and temperature conditions bode well for the kharif agriculture season. 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. 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.