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Need to be watchful about demand sustainability after festivals: Shaktikanta Das

BusinessToday.In     November 26, 2020

Reserve Bank of India Governor Shaktikanta Das said on Thursday that even as the growth outlook has improved in India, downside risks continue due to recent surge in infections in advanced economies and the country. During his speech at the 4th Annual Day of Foreign Exchange Dealers' Association of India (FEDAI), Das raised concerns over sustainability with the festive demand coming down now.


"We need to be watchful about the sustainability of demand after festivals and a possible reassessment of market expectations surrounding the vaccine," he said. The RBI's concerns emanate from a rise in coronavirus cases in India. The country reported 45,000 fresh cases today, with total tally reaching 92 lakh.

Das said the monetary policy guidance in October emphasised the need to see through temporary inflation pressures and also maintain the accommodative stance, at least during this financial year and next.

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After witnessing a sharp contraction in GDP by 23.9% in Q1 and a speedy recovery in Q2, the Indian economy has exhibited stronger than expected pick up, he said. "The global economy has also witnessed a stronger than expected rebound in activity in Q3," he said.

He said a key source of resilience in recent months has been the comfortable external balance position of India supported by surplus current account balances, resumption of portfolio capital inflows, and sustained build-up of foreign exchange reserves. "Domestic financial market conditions were benign at the start of the year but witnessed severe stress and dislocation as the COVID-19 pandemic unfolded," he added.

The recent RBI article, titled 'Economic Activity Index', had said that Q2 will also record GDP contraction and it'll be India's first technical recession in terms of quarterly GDP numbers.

But, the situation seems to be improving steadily. Top banks and rating agencies have also improved their prediction about India's GDP contraction in FY21. SBI Research, in its new Ecowrap report, revised India's Q2 GDP growth estimate to -10.7% from earlier projection of -12.5% on positive global events and reduction in losses. Global ratings agency Moody's also expects a contraction of 8.9% in 2020 as compared to 9.6% earlier.

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