Financial conditions supportive of economic recovery: RBI

Mumbai, Aug 17 : Spurted by comfortable liquidity conditions, the financial condition of the economy stays benign and is supportive of recovery, the Reserve Bank of India (RBI) Bulletin for August said.

The bulletin noted that the course of the economy over the month and a half gone by has been altered by the slow retreat of the second wave of the pandemic.

Aggregate demand conditions are buoyed by the release of pent-up demand post unlock, while the supply situation is improving with the monsoon catching up to its normal levels and sowing activity gaining pace. Reaffirming the traction that the economy is gaining, the manufacturing activity is gradually turning around, while contraction in services has moderated, it said.

On inflation, the central bank said that the behaviour of food price mark-ups exhibited dramatic shifts following the outbreak of Covid-19 and the associated lockdown measures to contain its spread.

Using centre-wise daily data on retail and wholesale prices of 22 food items released by the Department of Consumer Affairs, the RBI found that mark-ups increased on average during the first nation-wide lockdown (March-May 2020) and persisted even during the subsequent unlocking phase.

Furthermore, the increase in margins was found to be driven predominantly by market centres, which faced high intensity lockdowns as measured by the mobility indices.

However, reflecting less stringent and localised nature of lockdowns as well as better supply chain management during the second wave of Covid-19 (April-May 2021), the extent of increase in mark-ups was relatively modest, it said.