While IMF Praising Indian Economic Growth, Rupee Free Fall Continues

While IMF Praising Indian Economic Growth, Rupee Free Fall Continues

Continuing its downward journey to new fresh lows, the Indian rupee slipped to a new low of 74.27 to a US dollar during the mid-afternoon session.

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Continuing its downward journey to new fresh lows, the Indian rupee slipped to a new low of 74.27 to a US dollar during the mid-afternoon session.

Around 1.25 p.m., the Indian rupee traded at 74.27 to a dollar — the lowest ever against the greenback. The Indian currency made a slight recovery at 1.35 p.m. to stand at 74.26 to a USD.

It opened the day’s trade at the Inter-Bank Foreign Exchange Market at 73.85 to a USD from its previous close of 74.07.

The International Monetary Fund (IMF) on Tuesday acknowledged the economic reforms carried out under Prime Minister Narendra Modi and projected India to be the world’s fastest growing major economy this year and next.

Meanwhile, the World Economic Outlook (WEO) released ahead of the IMF annual meeting in Bali said, “In India, important reforms have been implemented in recent years, including the Goods and Services Tax, the inflation-targeting framework, the Insolvency and Bankruptcy Code, and steps to liberalize foreign investment and make it easier to do business.”

But citing external factors — “the recent increase in oil prices and the tightening of global financial conditions” — it cut India’s growth projection made in July for next year by 0.1 per cent to 7.4 per cent, which would still be the world’s fastest growth rate for major economies.

It kept the 7.3 per cent growth projection for this year made in July.

Compared to the projections made in April, the current one for 2018 is lower by 0.1 per cent and for 2019 by 0.4 per cent.

Up from India’s growth rate of 6.7 per cent in 2016, the growth projections for this year and the next reflect “a rebound from transitory shocks” of demonetisation and the implementation of the national Goods and Services Tax” and “strengthening investment and robust private consumption,” WEO said.

Beyond 2019, the IMF sees India’s growth rate improving “owing to structural reforms and a still-favourable demographic dividend.”

“India’s medium-term growth prospects remain strong at 7.75 per cent, benefiting from ongoing structural reform,” it added.

For India the IMF recommended “reform priorities include reviving bank credit and enhancing the efficiency of credit provision by accelerating the cleanup of bank and corporate balance sheets and improving the governance of public sector banks”.

It added, “A high interest burden and risks from rising yields also require continued focus on debt reduction to establish policy credibility and build buffers. These efforts should be supported by further reductions in subsidies and enhanced compliance with the Goods and Services Tax.”

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