India's aggregate demand conditions remain resilient despite Omicron, says RBI

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MUMBAI, Jan 17 (Reuters) - India's economic recovery has met headwinds from a rapid rise in COVID-19 infections due to the Omicron variant but aggregate demand conditions remain resilient, the Reserve Bank of India said in its monthly bulletin on Monday.

"The path of the recovery in India as in the rest of the global economy encountered headwinds from a rapid surge in infections due to Omicron," the RBI wrote.

However, due to upbeat consumer and business confidence and an uptick in bank credit, demand conditions have stayed resilient while on the supply front the sowing of winter crops has exceeded last year's levels and normal acreage.

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"Manufacturing and several categories of services remain in expansion. More recently, expectations that Omicron may turn out to be more of a flash flood than a wave have brightened near-term prospects," RBI said.

India's COVID-19 infections rose by 258,089 in the past 24 hours, a day after hitting an eight-month peak, the health ministry said on Monday, taking the tally to 37.38 million.

The central bank said the resurgence of COVID-19 and emergence of new variants pose a major risk to near-term global economic prospects. It said inflation continues to mount across geographies amidst disruptions in production, supply chains and transportation.

"Consequently, the divergence between monetary policy stances across jurisdictions has widened," RBI added.

"There are indications that supply chain disruptions and shipping costs are slowly easing, although the waning of inflation may take longer. This provides a window of opportunity to focus all energies on accelerating and broadening the global recovery".

Retail inflation in India, buoyed by rising prices of food and manufactured items, rose 5.59% in December from a year earlier and compared with 4.91% the previous month, data last week showed.

RBI said food inflation and its volatility remains a challenge and it would require supply side interventions such as higher public investment, storage infrastructure and promotion of food processing.

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Reporting by Swati Bhat, Editing by William Maclean

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