Lower inflation forecast

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The Asian Development Bank said yesterday that the recent decline in oil price would lead to lower inflation in the region. The bank in a supplement to its Outlook 2014 Update, lowered its inflation forecast for the region to 3.2 percent in 2014 from an earlier forecast of 3.4 percent; and 3.5 percent in 2015 from an earlier forecast of 3.7 percent.

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The bank said that the plunge in oil prices will provide opportunities for oil importers like Indonesia and India to reduce costly fuel subsidy programs.

“While growth in the first three quarters of this year were somewhat softer than we had expected, declining oil prices may mean an upside surprise in 2015 as most economies are oil importers,” ADB Chief Economist Shang-Jin Wei said.

“Oil exporters can seize the opportunity to develop their manufacturing sectors as low commodity prices tend to make their real exchange rates more competitive,” added Wei.
As oil and commodity prices continue to fall, many developing Asian economies have revised their inflation forecasts downward.

The report noted that the growth outlook for developing Asia remains steady, even though momentum slowed in the second half of 2014. According to ADB, India is on track to reach the Update growth forecast of 5.5 percent in FY2014 (ending 31 March 2015) after expanding by 5.7 percent in the first quarter and 5.3 percent in the second quarter.

“By eliminating diesel fuel subsidies, the government has demonstrated its willingness to tackle contentious reforms, but it must extend its efforts to reach the forecast 6.3 percent growth in FY2015,” it added.

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