145;Resisting rupee may trigger inflation146;

There could be inflationary pressures down the line if the upward pressure on the rupee is resisted with, according to International Monetar...

There could be inflationary pressures down the line if the upward pressure on the rupee is resisted with, according to International Monetary Fund IMF chief economist Kenneth Rogoff. Prof Rogoff said there is always a trade-off, but added that India could still live with an inflation rate of 4-5 per cent per annum.

The country8217;s forex reserves have grown hugely to over 80 billion with a large accretion of nearly 20 billion over the last fiscal. Prof Rogoff noted that when reserves are low, and there is pressure to depreciate, a fixed-rate currency regime could prove tricky. But in the case of India, the situation is quite the reverse.

Now, does that mean that full convertibility should be opted for? And given the fact that India has done so well on the external front, do the current junk sovereign ratings by Standard 038; Poor8217;s, and Moody8217;s hold any good?

Prof Rogoff could not be pinned down on both points. 8220;More than convertibilty, flexibility is what I will stress8221;. On country ratings, his remark 8212; if subject to interpretation 8212; seemed to indicate a more favourable disposition towards the country on the part of rating agencies: 8220;India has never defaulted on its obligations8221;.

Then came the issue of achieving an 8 per cent GDP growth. It was stressed that the country needs to have a programme to fire its second generation reforms, which has witnessed a slowdown in recent years. Said Prof Rogoff, 8220;India made very good use of its 1991 IMF programme and brought about significant economic progress. However, the recent slowdown in growth performance has cast doubts over the projected 8 per cent growth rate in the current five-year plan. It8217;s a tough question as to how to achieve further growth8230; and I don8217;t think anybody has a clear answer. But I hope that the next set of reforms is triggered on account of rivalry with China, and less on account of an IMF programme for aid!8221; IMF has been very flexible in it8217;s interaction with the governments to draw a roadmap for further growth and India must take such initiatives of the IMF to speed up the second generation of reforms.

India is going to have the next IMF chief economist of their own Dr Raghuram Rajan. 8220;He is going to bring in a great deal of experience in the banking and financial sectors. His knowledge of developing economy would help a lot for India and other Asian nations,8221; Rogoff said.