Strong Rupee, Lower GDP Likely to Lower India’s Inflation to 4.1 Per Cent in FY20: ADB

Asian Development Bank (ADB) has lowered the inflation forecast for India during the current financial year to 4.1 per cent, on the back of gain in rupee and cut in the country’s GDP projection.

India will be the main driver to lower the inflation for the South Asian region, ADB said in a supplement Asian Development Outlook (ADO) 2019.

South Asia’s inflation forecast for 2019, was revised down from 4.7 per cent to 4.5 per cent, mainly reflecting lowered forecasts for India, the ADO supplement said.

The ADO supplement has lowered India’s GDP growth forecast by 0.2 percentage points from April outlook to 7 per cent in 2019-20.

“In light of a smaller-than-expected uptick in food inflation, a strengthening Indian rupee since October 2018, and a lower GDP growth forecast, this Supplement revises down inflation forecasts for India by 0.2 percentage points to 4.1 per cent in FY2019 (fiscal ending in March 2020) and 4.4 per cent in FY2020 (ending March 2021),” ADB said.

As per the ADO supplement, inflation projections for developing Asia were revised up a notch from 2.5 per cent to 2.6 per cent in both 2019 and 2020, reflecting higher oil prices and several domestic factors.

Price fluctuations for brent crude oil continue amid various concerns affecting both supply and demand, it added.

Meanwhile, the Reserve Bank of India (RBI) in its last monetary policy review in June had raised the retail inflation forecast marginally to 3-3.1 per cent for the first half of the current fiscal citing reasons of up-tick in food prices – mainly vegetables, despite expectations of a normal monsoon this season.

However, the retail inflation projection for the second half of 2019-20 has been cut to 3.4-3.7 per cent as against RBI’s previous projection of 3.5-3.8 per cent.

The RBI will review the monetary policy in its upcoming meeting in early August.

Source: THBL

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