Our in-house mobility tracker suggests that the surge in virus infections in India is now weighing on activity. This is likely to become more pronounced as the outbreak has become more widespread, causing several state assemblies to tighten containment measures in the past few days. Delhi this week imposed restrictions on non-essential services, while a night curfew has been introduced in Tamil Nadu. Clearly, the economic outlook is clouded with uncertainty. It seems highly likely now that GDP will contract in q/q terms in Q2, though a y/y surge in growth is still nailed on given that restrictions are nowhere near as stringent as they were a year ago. A clearer consequence of the new virus outbreak and tightening of restrictions is that the RBI will be in even less of a hurry to withdraw policy support. Markets are too hawkish in pricing in 70bp of rate hikes over the next 12 months.
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