Omicron impact on FY2022 GDP and MPC: ICRA

5 Jan 2022 , 02:08 PM

“Many high frequency indicators had displayed a YoY flattening in November 2021, with slack emerging post the festive season and supply disruptions caused by heavy rainfall in Southern India. While most of the available indicators have displayed some rebound in December 2021, the pace of growth of the majority of them trails the levels seen in October 2021. We expect GDP growth of 6.0-6.5% in Q3 FY2022.

Our early analysis suggests that the impact of an Omicron wave may be limited to one quarter in terms of the duration of the surge in fresh cases, as well as the economic impact given the better preparedness of governments, the health care system and households. However, there continues to be a lot of uncertainty around this. The impact on GDP growth will depend on the extent to which restrictions need to be extended across states in the coming weeks. As of now, we see a modest downside to our forecast of FY2022 GDP expansion of 9.0%.

With the recent surge in Covid-19 cases and widening of restrictions leading to heightened uncertainty, it is increasingly unlikely that the MPC and RBI will commence with policy normalisation in February 2022 itself, unless inflation provides an acutely negative surprise. However, the likelihood of the latter is muted at this point.”

The author of this article is Ms. Aditi Nayar, Chief Economist, ICRA Limited.

The views and opinions expressed are not of IIFL Capital Services, indiainfoline.com