ADB raises inflation forecast for India

The Asian Development Bank has raised its inflation projection for India to 5% from 4.6% for this financial year, blaming higher crude oil prices, depreciation of the Indian rupee and increase in minimum support prices.

In its supplement to the Asian Development Outlook released in April, ADB said that the upward revision “responds to higher oil prices, significant depreciation of the Indian rupee in the past few months, and generous increases announced on July 4 in minimum support prices for summer crops, by which the government intervenes in markets to protect agricultural producers from any sharp fall in farm prices.”

The International Monetary Fund had on Monday lowered its growth projection for India by 10 basis points to 7.3% citing higher oil prices and speedier interest rate increases by RBI due to higher than expected inflation.

However, ADB said India is expected to achieve its earlier growth forecasts of 7.3% in 2018-19 and 7.6% in 2019-20 as bank-strengthening bolsters private investment and benefits kick in from a new goods and services tax, while maintaining that increase in oil prices pose a downside risk to growth. In 2017-18, the Indian economy grew at 6.7%.

ADB said growth gained momentum in Q4 of 2017-18 as GDP expansion reached 7.7%, the highest rate since Q1 of 2016-17. It said in the first half of FY2019, the growth rate is expected to benefit from a low base.

In June, India’s wholesale price inflation shot up sharply to a five-year high of 5.77% while retail inflation quickened to a five month high at 5%. Many analysts now do not rule out RBI going for another round of rate hike next month in its policy review on August 1.

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