Reserve Bank may delay raising reverse repo rate, say HDFC Bank economists
HDFC Bank economists said the spread of the Omicron coronavirus and resulting curbs could lead to GDP growth coming in lower by 20 to 30 basis points (bps) than their earlier estimate of 6.1% for the fourth quarter ending March 2022.
The strong relation between economic activity and the Google Mobility Index in India suggested that with a rise in COVID restrictions — and hence mobility — economic activity was likely to take a hit in Q4, said the economists led by Abheek Barua. Other risks to the original forecast are in the form of States imposing restrictions, and restrictions extending beyond January.
The Reserve Bank of India (RBI) had projected Q4 growth at 6% in its monetary policy meeting in December.
The HDFC Bank economists also warned that a slowdown in global recovery could weigh on exports.
“The return of uncertainty around growth and inflation due to the spread of the [Omicron] variant might delay the RBI’s decision to hike the reverse repo rate in February 2022 as well,” they said in the report titled ‘The Omicron Wave: Higher highs, weaker blows, impact on growth, FX and yields.’
“We expect the USD/INR pair to remain range-bound between 74-76 over the coming quarter. While the rise in COVID cases is likely to put pressure on the rupee, the RBI is likely to intervene and prevent sustainable moves beyond 76.”
They also estimated 10-year bond yields to trade between 6.4-6.5% over the coming month, ‘pressured by higher inflation, elevated oil prices, and normalising liquidity conditions’.
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