Weekly Economic Update
In the local economic news, even as the indicator of manufacturing activity continued to expand at a solid pace in April, the overall business activity declined somewhat during the month.
Markit Manufacturing PMI reading of 55.5 remained in the strong expansion area, led by the demand from export orders. On the other hand, the services sector activity, PMI reading declined to a level of 54 in April, a slowdown from a reading of 54.6 in March. The composite PMI, which combines manufacturing & services sector activity slowed to a level of 55.4 in April from 56 in March as indications of the early impact of localised lockdowns took effect. The month of May could signal a temporary slowdown due to renewed concerns over the resurgence of COVID cases.
On the policy front, RBI undertook fresh measures to support the economy during the second wave of Coronavirus in the country. Apart from the announcement of an additional purchase of Rs 35,000 crore under its GSAP 1.0 i.e. Govt. Securities Acquisition Programme, which will be completed on May 20, the central bank also allowed for the restructuring of small loans (up to Rs 25 crore). Along with this, a special lending window of Rs 50,000 crore for health infrastructure was also announced to support the purchase of health equipment to fight the pandemic. These measures are likely to support the economy in the short to medium-term.
In the US, Treasury Secretary, Janet Yellen has noted that the US central bank may need to raise interest rates to prevent the economy from overheating with the rising inflation. While she did acknowledge that the Federal Reserve is completely independent in making its decisions, she stated that 'even though the additional spending is relatively small, relative to the size of the economy, it could cause some very modest increases in the interest rates’.