ADB forecast: Inflation to be 4.5% in 2008-09

The Asian Development Bank (ADB) today forecast an annual inflation rate of 4.5 per cent for India during 2008-09. The Bank also said that gross domestic product (GDP) growth rate would moderate to 8 per cent in the current fiscal, before moving up to 8.5 per cent in 2009-10.

In the Asian Development Outlook 2008, the Manila-based bank warned that inflationary pressures would persist as local supply of foodgrain and vegetables were expected to remain tight in the current financial year.

Describing the recent rise in prices as the "biggest worry" for India at the moment, Narhari Rao, principal economist with ADB's India Resident Mission, said: "The inflationary pressure will remain for the next one or two months, after which a slowdown in the US economy will bring down global commodity and oil prices, easing pressure on the prices front."

The rising inflation, which hit a 13-month high at 6.68 per cent in mid-March, had prompted the government on Monday to scrap import duties on crude edible oils and ban exports of non-basmati rice.

Rao also said the bank had a blanket approval for raising $3 billion (Rs 12,000 crore) equivalent in rupee bonds and could start tapping the market this fiscal.

On the GDP growth front, ADB maintains that though growth will ease in the current fiscal from 8.7 per cent in 2007-08, it will remain solid. "Asia will remain the fastest growing region in 2008-09.

Current year will be bad by Asian standards but great by global standards," Rao said. However, Rao feels any further hike in interest rates will dampen the growth prospective.

On ADB's expectations on domestic interest rates, Rao said: "We do hope, as inflation declines, the monetary policy will be eased which will have a positive impact on manufacturing growth."

The Bank held that India's longer run growth trajectory depends on the structural and supply side dynamics. "The agriculture productivity needs to increase sharply to ensure food security and to foster inclusive growth," it said.