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Rebound underway, but relapse risks grow

India’s ferocious second virus wave is subsiding as quickly as it emerged, enabling the recovery to get back on track. However, the rapid scaling back of containment measures that is underway increases the threat of further outbreaks. And beyond the initial reopening bounce, the weakness of the banking sector will also weigh on the recovery. Under these circumstances, the RBI is likely to tolerate a bout of higher inflation and keep policy loose over the next year.

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