India's economy holding up well against COVID-19 surge, says RBI

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A view shows empty roads during a 14-hour long curfew to limit the spreading of coronavirus disease (COVID-19) in the country, in Ahmedabad, India, March 22, 2020. REUTERS/Amit Dave

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MUMBAI, April 26 (Reuters) - India's economic activity has held up well against the recent spike in COVID-19 cases but the rise in infections risks protracted restrictions and inflationary pressures, the central bank (RBI) said in its monthly bulletin on Monday.

"It is noteworthy that economic activity in India is holding up admirably against COVID-19's renewed onslaught," the RBI said.

"Apart from contact-intensive sectors, activity indicators largely remained resilient in March and grew beyond pre-pandemic levels on the back of strong momentum rather than statistical base effects," it added.

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India's coronavirus infections hit a record peak for a fifth day on Monday with 353,991 new cases. read more

The country still has localised lockdowns in some states to contain the spread of the virus but stricter norms could disrupt supply chains and add to inflation concerns as they did in 2020.

The RBI, however, is hopeful the economic recovery will continue based on data points like early corporate earnings, and steady rises in capacity utilisation and electricity consumption.

"It is not out of place to hope that these positive monthly developments reinforce each other and extend into a continuum that spans the medium-term," the RBI said.

The RBI said policy makers know from painful experience that it is perilous to withdraw stimulus too soon and that inflation is less sensitive to demand pressures than once feared, hence most central banks would lean towards growth in pandemic times, knowing that inflation is still only catching up.

The RBI has repeatedly assured bond markets that it would ensure ample liquidity in the banking system and help smoothly execute the government's massive 12.06 trillion rupees ($161.15 billion) market borrowing programme.

Bond yields, however, have remained sticky above 6% and broadly traded in a 6-6.25% range over the last two months.

"But when markets cannot keep the faith and take the inverse bet - that monetary policy cannot stay loose for long – they are frontrunning the economy. By anticipating monetary policy tightening, markets may bring it about sooner than it is right," the RBI warned.

($1 = 74.8390 Indian rupees)

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Reporting by Swati Bhat, editing by Ed Osmond

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