'Real' depreciation of Indian rupee is at 6-7%, estimates IMF
The real effective depreciation of the Indian rupee this year as compared to Dec'17 is between 6-7%, according to the International Monetary Fund (IMF), which warned that it would jack up the prices of imported goods. Since the beginning of 2018, the rupee "has lost about 11% of its value in nominal terms vis a vis the US dollar," said IMF spokesperson Gerry Rice.
India is not the only country whose currency is depreciating
Rice was responding to a question on the fall of the Indian currency in the last few months. He, however, said the currencies of many of India's trading partners, including those in the emerging markets, too have depreciated against the US dollar.
Depreciation will put upward pressure on inflation, spike petrol prices
Observing that India is a relatively closed economy, Rice said the contribution of net exports to growth in April-June quarter was again stronger than expected and the rupee's depreciation can be expected to reinforce this trend. "On the other hand, the depreciation will obviously raise the prices of imported goods like oil and petroleum products, potentially putting an upward pressure on inflation," he noted.
Rice says Indian economy recovering strongly from GST, demonetization
The Reserve Bank of India had taken the rising oil import prices into account when it had raised the policy rates in its last two meetings, Rice pointed out. Referring to a recent report of the IMF on India, Rice said the Indian economy is recovering strongly from the two transitory disruptions in recent years - the Goods and Services Tax (GST) and demonetization.
First quarter growth was stronger than IMF anticipated
"Growth has been gradually accelerating in recent quarters, with strength in both consumption and investment, which have helped the economy," Rice said. Noting that the first quarter growth figures were somewhat stronger than the IMF had anticipated, he said the world body will be reviewing its forecast for India, taking account of it and the recent global developments.
'Demonetization did hinder money supply, creating cash shortages,' says Rice
Rice said the IMF continues to assess the impact of demonetization on an ongoing basis. As with most things, there have been pluses and there have been minuses of demonetization, he said. "The demonetization did hinder the money supply, creating cash shortages, which also somewhat dampened consumer and business sentiment," he said, adding, it resulted in a relative slowdown in growth.
Not all is lost: Rice says demonetization had pluses too
"On the other hand, its (demonetization's) positive effects, I think, included enhanced digitalization and higher formalization of economy, which would help raise, amongst other things, the revenue and tax compliance," Rice said. He said there are already some signs of its positive effects. "Growth in the number of new taxpayers, as documented by the Finance Ministry, has been substantial in recent years," he said.
