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.
Shilan Shah Senior India Economist
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India Economics Weekly

Encouraging signs in state-level virus data

COVID infections have been falling in parts of India over the past week, particularly in those areas that were first to report Omicron waves. We’re hopeful that this is a sign of things to come, and wouldn’t be surprised if India’s third wave had largely subsided by the time the RBI next meets in early February.

21 January 2022

India Economic Outlook

On the cusp of policy tightening

India’s Omicron wave should only be a temporary setback to the economic recovery. As long as recurrent large waves of COVID are avoided, we think that economic growth will be faster this year than last. We also think that inflation will soon start to worry the RBI. Consequently, policy rates will be hiked by more than most anticipate.

19 January 2022

India Economics Weekly

Omicron surging, asset sales progressing

COVID-19 cases in India are still surging. But the early indications are that healthcare systems are not under significant pressure, and we’re hopeful that India’s third wave will peak before long. Even if it doesn’t, the better-than-expected fiscal performance over recent months means that there is policy space for the government to intervene.  

14 January 2022

More from Shilan Shah

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

India Data Response

GDP (Q3)

The 8.4% y/y rise in Indian GDP in Q3 (Q2 of FY21/22) is consistent with a rapid q/q rebound as virus restrictions were lifted and activity surged. But timelier data suggest that the recovery has since entered a slower phase. And hanging over all of this, low vaccination coverage means the threat of new virus outbreaks – either of the Omicron variant or potential successors – looms large. 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

30 November 2021

Emerging Markets Trade Monitor

The impact of Omicron on EM trade

If the new Omicron variant leads to tighter containment measures across the world, that would probably prop up demand for pandemic-related goods to the benefit of Asian exporters. Meanwhile, oil producers are likely to see external positions deteriorate if the plunge in prices is sustained. But arguably the most clear point for now is that the new variant will lead to renewed slumps in tourism, adding to balance of payments risks in the likes of Tunisia and Sri Lanka.

30 November 2021
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