The Reserve Bank of India (RBI) has said that there has been an improvement in the economic situation in India in the last one month. It added that there is more evidence coming in to show that the economy is “pulling out of Covid-19’s deep abyss and is reflating at a pace that beats most predictions”. However, the central bank also said that efforts needed to be redoubled to contain inflation before it hurts the impulses of growth that are taking root.
The central bank’s prognosis was part of its ‘state of the economy’ report, which is published in its monthly bulletin. The report said that economic conditions continued to improve through November 2020 on the back of the uptick in agriculture and manufacturing activity. “Financial conditions embodied in interest rates are perhaps at their easiest in decades. Although headwinds blow, steadfast efforts by all stakeholders could put India on a faster growth trajectory,” the report said.
The RBI also releases data on its foreign currency purchase in the bulletin. According to the data, the RBI purchased $113 billion of foreign currency between January 2019 and October 2020, of which nearly $60 billion was purchased between May 2020 and October 2020. An article in the bulletin justified RBI’s large-scale dollar purchase, for which it has been placed under a currency manipulator watch list by the US.
“In a recent study for India, it was observed that realised volatility (historical volatility) in US dollar-Indian rupee is a key component of the Financial Stress Index (FSI), which in turn has a statistically significant negative correlation with the Index of Industrial Production (IIP),” the report said. According to the RBI, disorderly movements in the exchange rate can often have a deleterious impact on trade and investment, besides endangering overall macroeconomic and financial stability.
The central bank said that its survey of bankers showed that there has been a broadbased improvement in sentiments on lending conditions, after a severe impact of the pandemic during April-June 2020. Responses indicated that bankers believe retail/ personal loans, which were most severely hit during the period, have bounced back. The respondents expressed lower optimism for the infrastructure, mining and quarrying sectors when compared to other major sectors.
