India’s central bank may have to delay the start of monetary policy normalisation by three months amid rising COVID-19 cases, but barring the return of stringent lockdowns there is no significant threat to the economy’s recovery, analysts say.
Having seen a peak of daily cases of almost 1,00,000 in late September, infections had been on a steady decline but have now started rising again over the last month.
“Even as the increase in the current caseload points to the risk of a second wave, more localised and less stringent restrictions will help contain the economic impact versus the initial wave,” said Radhika Rao, an economist with DBS Bank.
DBS has retained its assumptions for a stronger pick-up in March quarter growth versus the December 2020 quarter.
India reported 35,871 new coronavirus cases on Thursday, the highest in more than three months, with Maharashtra alone accounting for 65% of that.
Though analysts are unlikely to rush to review their growth forecasts, several believe policy normalisation, may now take a backseat.
“Monetary policy normalisation might be pushed back by a quarter as authorities monitor developments closely,” Ms. Rao said.
The RBI in early January said it wanted to start restoring normal liquidity operations in a phased manner.
“Growth concerns due to rising pandemic cases… could push back market expectations on the timing of policy normalisation,” Nomura economists Sonal Varma and Aurodeep Nandi wrote in a note.
