Deutsche Bank, in its report titled ‘What Will India’s Plan B Look Like In Case Of An Extended COVID-19 Second Wave’ highlighted that the second wave of COVID-19 has led to increased uncertainty on the macro front.
Discussing the impact on growth and earnings forecast, Kaushik Das, Chief Economist of Deutsche Bank said that they had built in risks of a potential second COVID-19 wave and hence as of now there is no need to reduce the GDP forecast of 10.5 percent growth for FY22.
He also said that the FY22 growth will be strong year-on-year (YoY) due to low base. “Even if you get 10.5 percent growth which is what RBI is projecting and about 5 percent inflation -- that I would consider as a base case scenario even with this uncertainty that we have because we have a very positive base effect from last year and therefore growth would be on a YoY basis at least pretty strong in FY22,” he explained.
However, he said that if the COVID cases continue to rise until June, July and fear of nation-wide lockdown starts to set in, then that could have tremendous impact on growth and the 10.5 percent growth may not be met.
He also said that monetary policy has been doing most of the heavy lifting and RBI may bring in tools like standing deposit facility in case the situation worsens.
“If you have an extended COVID-19 problem, the first response from RBI will be to temporarily stop the variable rate reverse repo (VRRR) auctions and what that might do is that that might push short term rates even lower than the reverse repo rate. Then RBI may bring something called as standing deposit facility which becomes the floor for interest rates,” he said.
He also said that the government is unlikely to change its fiscal deficit target for FY22.Watch video for more.