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India’s economic growth will likely “touch” 7% in the next fiscal year while inflation will average around 4.5%, central bank Governor Shaktikanta Das projected.
“I am saying this on the basis of strong momentum of economic activity seen in India,” Das said at an event organized by the Confederation of Indian Industry in Davos on Wednesday. The economy is poised for a long haul of higher growth, he said.
India is the world’s fastest-growing major economy, with growth expected to reach 7.3% in the fiscal year through March, according to the government’s projections. Das’s outlook of about 7% growth in the coming fiscal year is above the 6.3% median in a Bloomberg survey of economists.
The inflation outlook will be considerably influenced by food prices, which remain uncertain, the governor said. Recurring food price shocks could lead to a de-anchoring of inflation expectations and generalized price pressures in the economy, he warned.
Monetary policy needs to remain actively disinflationary to steer inflation toward the 4% target on a durable basis, Das said.
The Reserve Bank of India has left rates unchanged for five straight policy meetings, sticking to a relatively hawkish stance. Economists are projecting the central bank will begin cutting interest rates this year as the Federal Reserve begins easing policy.
On the exchange rate, Das said the rupee is a “freely floating currency” and is market determined. The currency’s relative stability recently is an outcome of the strength of the Indian economy and improvements in the nation’s external position, he said.
The International Monetary Fund said last month that the central bank’s intervention in the foreign-exchange market was excessive, implying it was trying to influence the level of the rupee. India has rejected the analysis, calling the IMF’s assessment “unjustified.”
“Labeling the Indian rupee in any other manner by cherry-picking time periods for analysis is not appropriate and grossly inconsistent with reality,” Das said Wednesday.
