Omicron May Impact Economic Growth By 0.3% by March Quarter, states reports

Growth might be impacted by up to 0.30 per cent in the March quarter as well as normal economic activities come under pressure due to restrictions being imposed by more states in order to curb rising Omicron cases, economists at the country's largest private sector lender HDFC Bank said on Tuesday.

The economists said they were earlier estimating Q4 growth to come at 6.1 per cent, which can get impacted by 0.2-0.3 per cent because of the Omicron threat.

"With states imposing Covid-related restrictions (night curfew on movement of people, restaurants allowed at 50 per cent capacity, offices to operate at 50 per cent capacity in various states), economic activity is likely to get impacted in Q4FY22," they said.

The downside risks at the current juncture emanate from more states imposing restrictions, the restrictions extending beyond January 2022 and also a slowdown in global recovery which will weigh on the exports, they said in a note.

Experience from previous waves during the Covid pandemic suggests that restrictions are imposed on mobility as Covid cases rise, which in turn has an impact on economic activity, they said.

It said the Omicron cases are spreading at a faster pace in India and about 60 per cent of the overall infections are reported to be that of the new variant.

The overall Omicron tally stood at 1,700 as of Monday but the actual number could be higher as India has very few testing facilities to check genome sequencing, it said, adding that some media reports peg the total Omicron cases at 18,000 in the country.

The note also said that despite the threat of the Omicron, the rupee will stay range bound between ₹74-76 to the greenback, and added that the RBI will intervene if the need arises.

Rate hike expectations will moderate as the growth gets impacted and the reverse repo hike expected in February is also uncertain now, it said, adding that the central bank will continue with its focus on liquidity normalisation and capping yields.

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