GDP recorded a lower contraction of 7.5 per cent in Q2 pushed by manufacturing growth.
With Q2 GDP numbers contracting to a lower degree than Q1 in the current fiscal and retail inflation uncomfortably high, the Reserve Bank of India (RBI) on Friday in its monetary policy is expected to leave interest rates unchanged.
Economists expect the RBI to announce measures to help tweak market rates through liquidity absorption operations or giving increased access to the reverse repo window to more market participants, a Reuters poll predicts.
The Indian economy recovered at a brisk clip compared with what was expected in the July-September (Q2) quarter aided by manufacturing growth that helped GDP record a lower contraction of 7.5 per cent, after contracting by a record 23.9 per cent in Q1. The recovery came despite Consumer Price Index (CPI) inflation being at a six-year high of 7.61 per cent in October. Wholesale price-based inflation rose to an eight-month high of 1.48 per cent.
For the bond markets, RBI’s latest strategy will most likely be to continue intervening in the bond markets to protect long-term bond yields from rising.
Gaurav Garg, Head of Research, CapitalVia Global Research Limited, says, “Analyzing the current scenario, RBI might rest their decision to continue with the status quo. However, in my opinion, inflation figures might be at a higher level, but still, RBI would not consider this as a time to start reversing the policy of low-interest rates as the GDP growth data for the past two quarters has been negative and as of now growth is going to take priority over inflation.”