Echoing the Reserve Bank’s view that upside risks to inflation were still significant in the short term, Asian Development Bank’s managing director-general Rajat Nag said the recent slump in global commodity prices is temporary and the pressure on prices will remain high due to increasing demand from China and US.
Calling RBI’s monetary stance as a difficult balancing act, Nag said the scope for monetary easing is limited due to high current account deficit and upward inflationary pressures. Nag cautioned emerging economies such as India of a possibility of asset bubbles forming in Asia due to quantitative easing steps taken by Japan and other advanced economies. He, however, said in a short-term increased capital flows are beneficial for India.
The Bank of Japan stunned financial markets last month by pledging to inject about $1.4 trillion into the economy to end nearly two decades of stagnation and hit a 2% inflation target in roughly two years.
Some policymakers in Asia fear strong capital flows coming from easier monetary policy in advanced economies may result in disruptive bubbles and currency appreciation, making Asian exports less competitive.
Nag said he did not see depreciation of Yen leading to currency war in the Asian region but added that it might have some impact.
He said huge investments will lead the growth for India. ADB expects the economic growth to be 6% for the current year. Expecting India to register 6.8% growth for the next year, Nag cautioned about the high CAD, which ?can pose systemic risks to its future growth?.