Emerging economies like India need to develop their domestic markets to drive growth as the economic recovery in the West is likely to remain weak, Gerard Lyons, chief economist and group head of global research, Standard Chartered Bank said on Thursday.
Lyons also said that the Reserve Bank of India (RBI) is likely to increase interest rates by 25 basis points in the next monetary policy slated to be announced in April.
“In India, we feel, rates would go up and move towards a less accommodative monetary policy,” Lyons said, adding that food prices are likely to remain stubborn in the near future. He added that the shift from the easy and accommodative monetary policy
A deeper and well developed bond market and a framework providing social safety net would be needed in India.
“India must focus on development of infrastructure — hard and soft — while trying to boost domestic savings which in turn should turn into high consumption,” he said.
Controlling the pace of the capital inflow is also another challenge that India would need to handle, Lyons said.
According to Standard Chartered Bank, the rupee would appreciate due to positive outlook on growth and balance of payment and could touch 42 for a dollar.
Lyons also said that dollar could weaken in the second half of the year.