India's economic growth is accelerating in an environment of rising price pressures, setting the stage for an increase in the interest rate next week.
Growth accelerated to 7.7 percent in the fourth quarter of the financial year ending March 31, government data showed on Thursday, the fastest pace of any major economy. That is in addition to calls to Governor Urjit Patel to activate the rate at the June 6 monetary policy meeting, and follow the central banks in emerging markets from Argentina to Indonesia that have intensified measures to curb flows and curb the defeat in their currencies.  "After Indonesia and the Philippines adjusted the rate upwards, we believe that the central bank of India will do the same and start normalizing the policy," said Shashank Mendiratta, an economist at ANZ Banking Group in Bangalore, which predicts a rise of 25 basis points next week. . "Inflation will remain above 4 percent until 2018."
The rupee is the currency with the worst performance in Asia this year, more than 5 percent against the dollar, and along with oil prices, it is a major threat to inflation. The Reserve Bank of India aims to keep inflation at 4 percent in the medium term, and is already well above, at 4.6 percent, with economists in a Bloomberg survey that predicts it could reach more than 5 percent in the coming months.
The currency rose 0.2 percent to 67.27 against the dollar at 9:50 a.m. in Mumbai on Friday.
Growth in Asia's third largest economy is recovering after reaching 6.7 percent in the 2018 fiscal year, the slowest pace since Prime Minister Narendra Modi came to power. The RBI expects growth of 7.4 percent in the year to March 2019 amid better demand, in line with market consensus.
In the January-March quarter, the growth was supported by the expansion in manufacturing and service industry, which contributes more than 50 percent to the gross domestic product, grew at a slightly slower pace . Gross fixed capital formation, a measure of private investment, rose 14.4 percent in the quarter from the previous year, showing signs that the recovery is still standing.
Improving demand and global liquidation in emerging markets are reasons why some economists They ask the central bank to act early and tighten the policy for the first time in more than four years.
"We have been forecasting the first increase of 25 basis points in August, followed by another one in October," said Pranjul Bhandari, India's chief economist at HSBC Holdings Plc. "However, there are risks of being bought for the June 6 meeting."
A rate hike can calm nervous investors who have been withdrawing money from Indian assets amid rising bad loans and growing fraud in the banking system. That leaves the economy vulnerable to a large financing gap in its external accounts, just like in the summer of 2013 when India was shaken by the so-called diminishing tantrum.
As the third largest oil importer in the world, India is also taking a hit due to rising oil prices. Each increase of $ 10 increases the inflation rate by 30-40 basis points and hurts economic growth by approximately 15 basis points, according to Nomura Holdings Inc.
"By 2019 we expect growth of 7.4 percent, with a Big warning that if oil prices remain high for too long, then there will be an impact on growth, "said Devendra Kumar Pant, chief economist at Fitch Ratings Ltd.  – With the assistance of Manish Modi and Ronojoy Mazumdar  ( Updates with rupee in the fifth paragraph. )