India: Steady RBI sees economic rebound depending on pandemic progress – UOB


Barnabas Gan, Economist at UOB Group, evaluates the latest Reserve Bank of India (RBI) meeting.

Key Quotes

“The Reserve Bank of India (RBI) kept its policy repo rate and reverse repo rate static at 4.00% and 3.35% respectively in its April’s monetary policy meeting, in line with market expectations. This is the fifth time that the RBI has kept its policy repo rate unchanged, following a 40bps cut during an unscheduled meeting on 22 May 2020.”

“In line with the optimism, policymakers kept their growth outlook of 10.5% in FY2021/22, versus an expected contraction of 8.0%1 in the previous fiscal year. We observe that India’s high-frequency data continued to suggest an economic recovery backdrop in FY2021/22.”

“India’s economic recovery prospects is expected to gain traction on the back of a strengthening global external environment. This suggests that trade-related sectors such as manufacturing, infrastructure, and mining & quarrying are likely to be key economic growth supports in 2021. In addition, India’s sizeable agriculture, forestry & fishing sector (accounting for 14.8% of GDP in FY2020/21) is expected to stay resilient, given the 4.1% expansion in 2020 despite the COVID-19-induced slowdown then.”

“India’s growth prospects will therefore depend largely on how COVID-19 evolves. Thus far, macroeconomic indicators have been recovering, and the outlook is also expected to improve further with the rollout of the vaccine programme across the country. However, we are worried over the renewed surge in COVID-19 cases, which in turn could inject a considerable downside risk to RBI’s (and UOB’s) GDP growth outlook of 10.5% in FY2021/22. We keep to our view for RBI to hold policy rate unchanged for the whole of 2021, although a risk of a rate cut in the second half of 2021 may be possible should COVID-19 stays unchecked in India.”

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