On the back of the recent increase in monetary policy rates by the Reserve Bank of India (RBI), the Asian Development Bank today said it was the right time for developing Asian economies to unwind monetary and fiscal policy stimulus.
It said proactive policy measures had helped Asian economies, particularly that of India and China, to lead the growth in the region but the time was right to stabilise the respective policy stances.
“We at the ADB believe that well-designed stimulus exist strategies are critical to sustain the region’s recovery. With a few exceptions, it is now time to begin unwinding policy stimulus,” said Srinivasa Madhur, senior director, office of regional economic integration, ADB.
Rajat M Nag, managing director general of ADB, stated that developing Asian countries had proactively used monetary and fiscal policies and had tackled the global economic downturn much better than what was expected. ADB had recently upgraded its growth projection for the Asian region to 8.1 per cent in 2010 from an earlier forecast of 7.5 per cent. However , even as the growth will be good for Asian economies as a whole, it is likely to taper off to 7.2 per cent in 2011.
ADB has forecast India to grow at 8.2 per cent in the calendar year 2010, while the finance ministry has pegged the growth for the financial year 2010-11 at 8.5 per cent. The International Monetary Fund (IMF) had recently given a higher projection for India of 9.5 per cent for 2010.
“We have given regular updates and have always revised them upwards. But challenges still remain. The European debt crisis has resulted in a somewhat uncertain environment, dramatic capital flows and exchange rate fluctuations are all concerns,” Nag said.
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ADB pointed out that economic outlook in developing Asian economies were subject to three major risks — disruption in recovery in the advanced economies, destabilising capital flows and unintended policy errors or an inappropriate policy mix when unwinding stimulus. It also said that if China allowed its currency to appreciate, it would be good for the global economy.
Planning Commission Principal Advisor Pronab Sen, however pointed out the developing Asian economies needed to do more thorough thinking in the way in which stimulus and monetary policy was being unwounded considering the global economic scenario.