Rating agency Icra on Wednesday said while there is some evidence of the economic recovery becoming broad-based in the third quarter of fiscal 2022, it is yet to attain the durability being sought by the Monetary Policy Committee (MPC) as a precursor to policy transmission.
The agency expects the real GDP to expand 6-6.5 per cent year-on-year in the third quarter of FY2022 (+8.4 per cent in Q2 FY2022). It also sees the RBI maintaining the status quo in the upcoming monetary policy review to be held in February. Its Chief Economist Aditi Nayar said economic activity rebounded in December 2021, even as many sectors continued to trail the performance recorded in October 2021.
Encouragingly, the quarterly data suggests a modest broad-basing of the recovery in Q3 FY2022, relative to Q2 FY2022, when compared to respective pre-COVID-19 volumes.
“However, the onset of the third wave of COVID-19 has triggered state-wise restrictions, which have expectedly interrupted the momentum in the ongoing month, reiterating that the recovery is yet to attain durability,” Nayar said in a report released on Wednesday.
The agency said the y-o-y performance of 10 of the 15 high-frequency indicators improved in December 2021 compared to November 2021. These include generation of GST e-way bills, non-oil merchandise exports, electricity generation, two-wheeler output as well as aggregate deposits and non-food credit of scheduled commercial banks.
The report further said the y-o-y performance of nine of the 15 high-frequency indicators in December 2021 trailed the growth seen in October 2021.
FASTag toll collections and retail payments rose to all-time highs in December 2021, while the monthly mobility for retail and recreation rose above the level of baseline period for the first time since the onset of COVID-19, it said.
Nayar further said that following the re-imposition of state-wise restrictions to curb the third wave of COVID-19, the early data for January 2022 is expectedly weak.
The daily average generation of the GST e-way bills dipped to 2.1 million during January 1-16, 2022, from 2.3 million in December 2021. After a y-o-y growth in December 2021, the sales of petrol and diesel of state refiners slipped back to a contraction in the first half of January 2022. Even, the y-o-y growth in electricity demand eased to 1.9 per cent during January 1-16, 2022, from 2.8 per cent in December 2021, she said.
The agency said that with the fresh uncertainty triggered by Omicron and the associated restrictions, it expects a status quo on the stance of the monetary policy as well as the reverse repo rate in the upcoming RBI policy meeting, in spite of the rise in the retail inflation in December 2021.
The Consumer Price Index (CPI) accelerated to a six-month high of 5.59 per cent in December 2021, close to the RBI’s upper tolerance band of six per cent.