Economic recovery momentum continued in December quarter: UBS

UBS-Financial conditions indicator suggests economic recovery momentum continued in December quarter after a swift rebound in the second quarter, even as the pace has slowed, says Tanvee Gupta Jain of UBS Securities. High frequency indicator suggests economic activity appears to be gradually returning to pre-covid levels, service sector continues to lag. Expect FY21 GDP to contract by a lesser magnitude of 7.5%. Inflation is likely to remain above target and policy rates lower for longer period of time. Tanvee believes RBI to keep policy rates largely stable in FY22 and expects room for 25bps easing depending on how growth-inflation dynamics. UBS expects RBI to maintain surplus liquidity to support Government’s borrowing programme.