The International Monetary Fund (IMF) has cut India’s GDP growth forecast by 10 basis points to 7.3% in the year 2018 and by 30 basis points to 7.5% in 2019, as the international body expects the central bank to tighten the monetary policy faster. The IMF said that rising oil prices, which have hit the local demand coupled with fears of trade war could impact India’s GDP growth in the current calendar year and the next calendar year.
Anticipating inflationary risks, the Reserve Bank of India, in its June Monetary Policy meeting, hiked the repo rate by 25 basis points to 6.25% for the first time in four-and-a-half years. Many experts say that given the inflationary risks building up due to higher oil prices and weaker Rupee, the RBI may go for a 50 basis point hike by the year-end. The RBI rate hikes are also coinciding with the tighter monetary policy by the US Fed.
The IMF warned countries about the looming trade war, saying that it is threatening to derail the economic recovery and depress medium-term growth prospects. The IMF also cut the economic growth forecast Brazil by 50 basis points to 1.8% for the year 2018 due to the lingering effects of labor strikes and political uncertainty. While the IMF has cut GDP growth forecast for India, Brazil, and Argentina, it has retained it for the United States, Russia, and China.
After slowing down in the financial year 2017-18 on the back of two structural changes — demonetisation and the GST — the Indian economy is expected to clock a 7% plus growth rate. The forecast by different international agencies for the coming two years range between 7.3% to 7.8%. Even after the cut by IMF, India is expected to beat China in terms of GDP growth rate.