IMF estimates inflation in India to rise from 3.6% in FY18 to 4.7% in FY19 amid accelerating demand and rising fuel prices
The International Monetary Fund (IMF) on Tuesday called for further tightening of monetary policy in India to anchor expectations as inflation was expected to pick up.
It maintained India’s growth projection at 7.3% for 2018-19. “Monetary policy should be tightened to re-anchor expectations where inflation continues to be high (as recently done in Argentina), where it is increasing further in the wake of a sharp currency depreciation (Turkey), or where it is expected to pick up (India),” IMF said in its biannual World Economic Outlook (WEO) report.
IMF estimates inflation in India to rise from 3.6% in 2017-18 to 4.7% in 2018-19 amid accelerating demand and rising fuel prices. It said core inflation, excluding all food and energy items, in India had risen to about 6% as a result of a narrowing output gap and pass-through effects of higher energy prices and exchange rate depreciation.
It said interest rates in advanced economies are expected to increase from the current stillaccommodative levels, and with trade tensions rising, emerging market and developing economies should be prepared for an environment of higher volatility. It said under floating exchange rate regimes, such as the one in India, foreign exchange interventions should be limited to addressing disorderly market conditions while protecting reserve buffers.
IMF kept India’s growth forecast unchanged at 7.3% for 2018-19 from 6.7% in 2017-18.
However, it revised India’s growth projection downward for 2019-20 by 10 basis points to 7.4%, citing the recent increase in oil prices and the tightening of global financial conditions.
“This acceleration reflects a rebound from transitory shocks (the currency exchange initiative and implementation of the national goods and services tax), with strengthening investment and robust private consumption. India’s medium-term growth prospects remain strong at 7.75%, benefiting from ongoing structural reforms, but have been marked down by just under 0.5 percentage points relative to the April 2018 WEO,” it added.