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India gears up for rapid economic recovery; Festive season warrants caution: RBI

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RBI maintained status quo on interest rates in its October monetary policy.

New Delhi: The Reserve Bank of India (RBI) on Monday said that the country is on a rapid recovery path with growth impulses clearly transmitted across all sectors of the economy. In its economic review for the month of September, the central bank said, “The strategic reforms undertaken so far along with new milestones in the vaccination campaign have enabled the economy to navigate the devastating waves of the COVID-19 pandemic.”

The central bank also said, “Continued strong growth in agriculture, strong rebound in manufacturing and industry, resumption of services activity, improved revenue collection and better financial conditions are testimony to the resilience of the Indian economy.”

However, the Reserve Bank has said to be careful for the current festive season. “While rapid progress in vaccination coupled with reduction in second wave bodes well for revival of consumer sentiment, the festive season warrants caution and continuation of COVID-appropriate behaviour,” it said.

“The agriculture sector continues to strengthen rural demand due to projected growth in kharif production, record-high procurement of wheat and paddy in the rabi marketing season and the current kharif marketing season,” RBI further said.

It added that a satisfactory monsoon promises similar gains in future as well.

The central bank highlighted that “the steady decline in growth of currency in circulation since August is indicative of declining demand for precautionary savings with the progressive reopening of the economy.”

RBI on equity markets

‚ÄúDomestic equity market is bullish on reassuring signs of both global and domestic economic recovery. FPI (foreign portfolio investment) inflows into the country remain strong, with India reporting highest inflow of $3 billion among emerging market economies in September India is reported to have received FPIs of $7.2 billion so far this financial year, which is the second highest after Brazil’s $9 billion.”

“These historic highs have triggered a rally in the domestic equity markets as record additions of new demat accounts (for holding shares and securities in digital form) broaden the equity investment base in the country,” it said.

Relief for the auto sector?

The Reserve Bank said auto sales will slow down due to the shortage of semiconductor chips. Currently, auto retailers are suffering huge losses as manufacturers struggle to ship vehicles to dealerships. “Automobile registration and sales continue to be impacted by the global shortage of semiconductor chips,” RBI said in its report. However, it expects demand to pick up in the post-monsoon festive season.

Meanwhile, the central bank maintained status quo on interest rates in its October monetary policy. The repo rate – the key interest rates at which the RBI lends money to commercial banks – was kept constant at four per cent, and the reverse repo rate – the rate at which the RBI borrows money from banks – at 3.35 per cent.

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