IMF Prefers Tighter Monetary Policy to Control Inflation in India

• 03.12.2015, 19:30
•  Asia,  World

Reserve Bank of India (RBI) needs to tight monetary policy to bring down inflation. Although it has described the country as a "bright spot" in the world economy, India still need to solve some monetary problems. Estimating the economic situation in India International Monetary Fund (IMF) has reported that policy measures to revive investment, reduce inflation, improve fiscal position and improve the ease of doing business have helped reduce India's external vulnerabilities and improve the economic outlook, Economictimes.indiatimes reports. 
On Monday RBI cut (repo) rate by 0.25% to 7.5%. This was the second cut in the last two months, but it still does not satisfy IMF because of falling inflation. High inflation is a source of economic vulnerability, it discourages financial savings, erodes additional competitiveness and inequality in the market, on the other hand it should be balanced with the market. Drops in global oil prices and week consumption have driven down inflation to 5%, Livemint reports.

According to IMF, in order for RBI to achieve 6.0% Consumer Price Index (CPI) inflation by next year, the country needs to maintain a tight monetary stance.

CPI based inflation stood at 5.1% in January while wholesale price index based inflation fell to -0.4%. CPI inflation is projected to move up to 6.25% by March of 2015. In order to achieve the goals the Indian government has signed an agreement with RBI to create a monetary policy committee, which will be responsible for the CPI inflation to meet IMF’s plans.