MUMBAI, Dec 23, 2006 (AFP) – India’s economy will continue to boom in 2007 but analysts say demand will slow as its central bank hikes interest rates to curtail consumer spending and higher prices.
India’s one-billion-plus population are buying more cars, phones, homes and goods than ever before and its companies have expanded quickly to meet demand domestically and to tap overseas business through acquisitions.
But the pace of domestic demand has surprised the government and the central bank, which have moved quickly to quell a rise in the general level of prices caused in part by higher food and raw material costs.
“We think that economic growth will slow next fiscal year to 7.8 percent from an expected 8.2 percent this year,” said economist Shuchita Mehta at JP Morgan in Mumbai.
“The economy will still show healthy growth, but the Reserve Bank and government cannot allow prices to rise too quickly and will act aggressively to halt inflation.”
A recent forecast by brokerage Merrill Lynch in India said wholesale price inflation, the most widely watched measure, will cross six percent in January from around 5.16 percent currently, mainly as goods and food prices rise.