Despite double-digit inflation, India’s GDP growth still healthy: Moody’s

June 20th, 2008 - 9:12 pm ICT by IANS  

New Delhi, June 20 (IANS) Despite double digit inflation, India is expected to record a GDP growth of ‘a still-healthy 7.6 percent’, the global rating agency Moody’s said Friday. “Household consumption and business investment will both moderate this year, but continued government spending on infrastructure development will help to support economic growth. For the financial year 2008-2009, Moody’s expects India to record GDP growth of a still-healthy 7.6 percent”, said Moody’s economist Sherman Chan, based in Sydney.

“Stronger inflation, coupled with tight monetary policy settings, will weigh on investor sentiment, which has already been reflected in the decline of stock prices’, Chan added.

The rating agency in a release also said that amid uncomfortably strong inflation, the central bank will further tighten the monetary policy.

“There is a good chance that the central bank will not wait until the next formal review, which is scheduled for July. In fact, by unexpectedly raising the lending rate last week for the first time in over a year, the RBI has sent a clear signal to the market that the tightening cycle has not finished and that they will take an aggressive approach, if necessary”, it added.

The inflation for the week ended June 7, jumped to 11.05 percent, hitting a 13-year high.

However, the Moody’s report also added that the government is unlikely to further hike fuel prices again in coming months “to avoid possible social unrest, and to prevent further damage to the incumbent political party’s image”.

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