IMF supports tight stance of India’s central bank
New Delhi: The International Monetary Fund (IMF), ahead of its chief Christine Lagarde’s two-day India visit that began on Monday, has supported the tight monetary stance of the Reserve Bank of India (RBI) and says 5-percent inflation in the country was still high.
“India’s monetary stance has been tight in recent period. We’ve seen big reduction in inflation in recent years. It’s come down from about 11 percent in the late 2013 to around 5 percent which is a big reduction,” said IMF Assistant Director Paul Cashin.
“Nonetheless, 5 percent inflation is still high. Expectations are still high. So we recommend that they keep a tight stance,” said Cashin, who oversees the Asia and Pacific Department of the IMF said.
The IMF prescription: Real interest rates be kept positive and the government does it bit as well for such support by lowering food price inflation, releasing food stocks and lowering the support prices for farm produce.
“So all of that is contributing, as well as low oil prices, which is a big bonus for a country like India in keeping inflation low. We are sure that if the stance is kept tight, inflation will be even lower, going forward.”
As per the IMF, Lagarde’s itinerary during her two-day visit included meetings Prime Minister Narendra Modi and key leaders including Finance Minister Arun Jaitley and RBI Governor Raghuram Rajan.
In addition, she is scheduled to deliver a speech at Lady Sri Ram College in the capital besides attend a public event hosted by the central bank in Mumbai Tuesday. She then travels to China on a five-day visit.
According to Cashin, the outlook for India was a lot brighter today than it was in recent years, with an uptake in growth, and that it was better placed today to handle another shakeout globally.
“W’re expecting India to grow at somewhere in the order of 6 percent this fiscal year — which is among the highest growth rates that we’ll see among all emerging economies,” he said.
“But that’s no say India is completely out of the woods. It does have a number of issues to face, primarily on the supp,y side of the economy, due to lack of infrastructure, lack of power generation, lack of roads and ports.”
While India also faces a number of external risks, if there is a recurrence of a global financial volatility, even though it will also affect India, it was better placed to handle such an eventuality.
“It (India) has a much smaller current account deficit these days. A much larger (foreign exchange) reserves. So they should be be better able to withstand those shocks.”