Indian economy continues to tread on its V-shaped recovery, with the pace of growth expected to increase and broaden further. However, risks continue to stem from rising COVID cases domestically, although the ongoing vaccination progress and local COVID control measures could prevent a sustained disruption to economic recovery. The global economic outlook has also improved. However, this has led to financial market volatility as markets’ reprice inflation expectations higher and unwinding/withdrawal of monetary and credit support by central banks. Nevertheless, India is better placed compared to the 2013 taper tantrum period, given its improved external account position. Possible spillovers from rising global commodity prices, especially energy, pose risks to inflation; however, the RBI is likely to maintain an accommodative stance into early FY22 and overlook a temporary spike in inflation given a negative output gap and low velocity.
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