Amid fall of the Indian currency in the last few months, the International Monetary Fund (IMF) has estimated that the real effective depreciation of Indian rupees is between 6% and 7% compared to December 2017. It said broadly since the beginning of the year, Indian rupee has lost about 11% of its value in nominal terms vis-a-vis the US dollar. Though, he added that the currencies of many of India’s trading partners, including those in the emerging markets, too have depreciated against the dollar.
IMF also said that contribution of the net exports to growth in the April to June quarter was again stronger than expected and the real depreciation of the rupee can be expected to reinforce this trend as India is a relatively closed economy. On the other hand, the depreciation will obviously raise the prices of imported goods such as oil and petroleum products, potentially putting an upward pressure on inflation. It noted that the Reserve Bank of India has taken the rising oil import prices into the account when it raised the policy rates in its last two meetings.
The agency further said the Indian economy is recovering strongly from the two transitory disruptions in recent years - the Goods and Services Tax (GST) and demonetisation process. Growth has been gradually accelerating in recent quarters, with strength in both consumption and investment, which have helped the economy. Besides, the IMF continues to assess the impact of demonetisation on an ongoing basis. It said as with most things, there have been pluses and there have been minuses of demonetisation.
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