Three points on banking sector liquidity

Measures by the Reserve Bank to drain banking sector liquidity have caught attention over the past few days. But with liquidity still abundant, interbank rates at the very bottom of the rate corridor and financial conditions exceptionally loose, these measures represent marginal tweaks rather than a tightening of policy.
Shilan Shah Senior India Economist
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India Economics Weekly

There is policy space to cushion any Omicron blow

Low vaccine coverage makes India's economy highly vulnerable to the emergence of the Omicron variant. The crumb of comfort is that there is policy space to soften some of the economic blow from a new outbreak. The fiscal position is healthier than usual for this time of year. Meanwhile, the RBI is likely to keep rates on hold in the MPC meeting next week and for a few more months beyond that.

3 December 2021

India Data Response

Manufacturing PMI (Nov.)

The jump in India’s manufacturing PMI in November suggests that the recovery is still ongoing, although it appears that global supply shortages have remained a drag. And with vaccination coverage in India still low, the threat of new virus outbreaks – either of the Omicron variant or potential successors – will continue to loom. Drop-In: India – How much scarring will the pandemic leave? 10:00 ET/15:00 GMT, Wednesday 1st December https://event.on24.com/wcc/r/3535749/63CC51718846E8FF3D871827AC84AF1E?partnerref=report Drop-In: Why is Asia sitting out the global inflation surge? 09:00 GMT/17:00 HKT, Thursday 2nd December https://event.on24.com/wcc/r/3546145/A9D34EF592141BEFCAC819ADB40359D5?partnerref=report

1 December 2021

RBI Watch

MPC to hold rates in face of Omicron uncertainty

Whereas many EM central banks have been hiking rates aggressively, the RBI has been taking only baby steps towards policy tightening over the past couple of months. And the emergence of the Omicron COVID-19 variant only reinforces our view that it will continue to move very cautiously. In all, we think the MPC will announce further small measures to drain liquidity from the banking sector at the conclusion of its policy meeting on Wednesday 8th December as it continues to lay the groundwork for policy rate hikes from mid-2022.   Drop-In: India – How much scarring will the pandemic leave? 10:00 ET/15:00 GMT, Wednesday 1st December https://event.on24.com/wcc/r/3535749/63CC51718846E8FF3D871827AC84AF1E?partnerref=report Drop-In: Why is Asia sitting out the global inflation surge? 09:00 GMT/17:00 HKT, Thursday 2nd December https://event.on24.com/wcc/r/3546145/A9D34EF592141BEFCAC819ADB40359D5?partnerref=report

1 December 2021

More from Shilan Shah

India Economics Weekly

Vaccine rollout accelerates, MSP hikes muted

India’s vaccine rollout has shifted into a higher gear over the past couple of weeks, but the slow start means that it would still take several months before a large majority of the population is fully vaccinated. Meanwhile, the annual Minimum Support Price increases for winter crops announced by the government this week are small and will only have a limited impact on both rural wage and food inflation.

10 September 2021

India Economics Weekly

Taking stock of our GDP forecasts

Much of the coverage of this week's Q2 GDP release highlighted the record y/y growth rate, but that was due to the slump last year rather than recent economic strength. We estimate that GDP dropped by 12% q/q in seasonally-adjusted terms. That large fall in GDP means there is more scope for the economy to have rebounded sharply in Q3. But taken as a whole, we've revised down our annual growth forecast for 2021 to 8%.

3 September 2021

India Data Response

GDP (Q2)

The record y/y rise in Indian GDP in Q2 (Q1 of FY21/22) was due entirely to base effects. We estimate that the economy shrank by 12% in q/q terms as India struggled with its Delta outbreak. Timely activity data point to a sharp rebound more recently as containment measures have been scaled back, but the risk of further outbreaks clouds the outlook.

31 August 2021
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