India Should Tighten Monetary Policy To Contain Inflation, Says IMF 21-Feb-2014

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The International Monetary Fund advised India to maintain the monetary policy stance appropriately tight given entrenched double-digit inflation expectations. The Executive Board of IMF on Thursday said the Reserve Bank of India should stand ready to lift the policy rate further so as to bring inflation to more sustainable levels. The board welcomed recent initiatives to strengthen monetary policy framework with a clear communication strategy. The lender expects consumer price inflation to remain near double-digits well into next year, driven by higher food inflation, the pass through from a weaker rupee and ongoing energy price increases.

For the fiscal year 2013-14, the lender projects 4.6 percent growth and 5.4 percent expansion for 2014-15. According to IMF, fiscal restraint and a tighter monetary stance will act as headwinds, slowing the recovery. Directors stressed that reviving India’s growth and raising the long-term growth potential require broader structural reforms to improve infrastructure and allocation of natural resources. Further, directors welcomed recent measures taken in financial system to enhance supervision and increase bank provisioning.