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RBI says protracted spread of COVID-19 poses downside risk to economy

On the other hand, consumer confidence turned more pessimistic in July relative to the preceding round of the Reserve Bank's survey, Das said.

The Reserve Bank of India on Thursday sounded a note of caution saying that protracted spread of the COVID-19 pandemic poses “downside risk” to the domestic economy which is expected to remain in the negative zone in the current fiscal.

RBI Governor Shaktikanta Das, while unveiling the bi-monthly monetary policy, also said that early containment of the pandemic could impart an “upside” to the economic growth outlook. Regarding growth outlook, the Monetary Policy Committee (MPC) noted that the recovery of the rural economy is expected to be robust, buoyed by the progress in kharif sowing.

Manufacturing firms expect domestic demand to recover gradually from the second quarter and to sustain through the first quarter of the fiscal 2021-22. On the other hand, consumer confidence turned more pessimistic in July relative to the preceding round of the Reserve Bank’s survey, Das said.

External demand is expected to remain anaemic under the weight of the global recession and contraction in global trade.

“… real GDP growth in the first half of the year is estimated to remain in the contraction zone. For the year 2020-21 as a whole, real GDP growth is also estimated to be negative,” Das said.

An early containment of the COVID-19 pandemic may impart an upside to the outlook. A more protracted spread of the pandemic, deviations from the forecast of a normal monsoon and global financial market volatility are the key downside risks, he noted.

The governor also that said in the the MPC’s assessment, global economic activity has remained fragile and in retrenchment in the first half of 2020. “A renewed surge in COVID-19 infections in major economies in July has subdued some early signs of revival that had appeared in May and June,” he said.

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