IMF es­ti­mates in­fla­tion in In­dia to rise from 3.6% in FY18 to 4.7% in FY19 amid ac­cel­er­at­ing de­mand and ris­ing fuel prices

Mint Asia ST - - News - BAY SIT R ANJAN M ISHRA

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.

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