Committed to growth, RBI maintains accommodative stance

By FE Online10 days ago

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Just when we thought that the economy (and life in general!) was beginning to take some semblance of normalcy, the second wave of COVID has once again underlined the capricious nature of recovery

The central bank also gave comfort to bond vigilantes by committing to buy G-Secs in the secondary market to the tune of Rs 1 lakh crore in Q1FY22 via a newly mooted tool of G-Sec Acquisition Programme GSAP 1.0.

Just when we thought that the economy (and life in general!) was beginning to take some semblance of normalcy, the second wave of COVID has once again underlined the capricious nature of recovery. Against this backdrop, the RBIs MPC expectedly maintained a status quo on rates and committed to remain accommodative with an open-ended guidance of as long as necessary to sustain growth on a sustainable basis.

At the beginning of 2020, we had alluded to Indias V-shaped recovery in FY22 being a function of 2 other Vs i.e. vaccination and virus. And rightly so, a quarter later while a better-than-anticipated progress has been made on the vaccine front, unfortunately, the virus, too, has to made a strong comeback.

In comparison to Q1 FY21, the impact of containment measures on growth is expected to be far limited, as 1) businesses and consumers have learned to live with the virus, 2) lockdowns are less stringent and less pervasive and 3) vaccine programme continues to make significant headway.

Consequently, we continue to retain our (which is our best-case scenario) FY22 GDP growth estimate at +11.5%, led by vengeance demand, especially in services (backloaded in FY22), continued recovery in manufacturing, a supportive global backdrop amidst a favourable base at play. At the other end of the spectrum (our worst-case scenario), a possibility of poor control of virus and vaccine taking greater time to achieve critical mass could induce a slower growth of 8.0% in FY22 almost equal in magnitude by which it contracted in FY21.

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