It cautioned that the strong growth across Asia could lead to overheating, a phenomena when the production capacity of an economy fails to keep pace with aggregate demand. "The IMF warns that Asia's rapid recovery from the global economic crisis has been accompanied by pockets of overheating across the region," it said in its Asia and Pacific 'Regional Economic Outlook' report.
"In India, base effects and policy tightening are projected to slow growth from 10.4 per cent in 2010 to a more sustainable 8.2 per cent in 2011 and 7.8 per cent in 2012," IMF said. The IMF report comes close on the heels of Asian Development Bank (ADB) projecting India's growth at 8.2 per cent for the financial year 2011-12.
The Reserve Bank of India (RBI) has already hiked policy rates eight time since March 2010 to tame inflation. During the annual credit policy to be announced on May 3, the RBI is expected to further raise short-term lending (repo) rate by 25 basis points.
The IMF report also said that during 2010, India with a growth rate of 10.4 per cent overtook China which grew by 10.3 per cent during the year. Pointing out that India and China will play leading role in Asia's growth, the report said the region's economy as a whole would see growth rate moderating to 6.8 per cent in 2011 from 8.3 per cent in the previous year. Asia's growth during 2012 has been projected at 6.9 per cent.
"While we expect inflation in many Asian economies to increase further in 2011 before decelerating modestly in 2012, inflation risks in Asia remain tilted on the upside," it said. The headline inflation in India's stood at around 9 per cent in end-March, which is higher than the RBI's projection of 8 per cent, and much above the comfort level of 5-6 per cent.
The IMF said that the earthquake in Japan last month caused huge loss of life and property and the government's response helped to contain the economic impact. "...spillovers to the rest of Asia through the supply chain should be limited," it said.
It said that the credit growth was not far from the "boom" levels in a number of economies, while property prices continued to grow rapidly in a few regional markets.
"(There could be) additional risks from higher commodity prices, volatile capital inflows and possible spillovers from Japan’s earthquake," IMF Head (Asia and Pacific department) Anoop Singh said.
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