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RBI may need to keep tight monetary policy longer: IMF

IMF said the monetary stance remains appropriately tight for achieving near-term inflation objectives

Press Trust of India  |  Washington 

Outside RBI Headquarters in Mumbai.? Photo: Kamlesh Pednekar
Outside RBI Headquarters in Mumbai Photo: Kamlesh Pednekar

Amid widespread expectations that Reserve Bank of India may further cut rates, the International Monetary Fund has said the central bank may require a "tight monetary stance for longer".

With Minister sticking to the target of 3.5% in 2016-17, there are rising expectations that the apex bank might ease rates during its policy meet next month.

In its staff report on India, said the monetary stance remains appropriately tight for achieving near-term inflation objectives.

"Following the formal adoption of the flexible inflation targeting regime in early 2015, progress to enhance communication and improve policy transmission continues. Favourable inflation dynamics gave the room to cut the policy rate, while maintaining positive real rates broadly consistent with the 'glide path' towards the medium-term inflation target," it said.

said that given upside risks to inflation, a re-emergence of inflationary pressures may require monetary tightening.

"Reducing still-high household inflation expectations will require a long period of low inflation which, unless underpinned by durable measures to boost food supply, may require a tight monetary stance for longer," said.

Meanwhile, the multilateral lender has projected a robust growth rate of 7.3% for the country this fiscal, picking up to 7.5% next year.

The staff report was prepared for the Executive Board's consideration on February 12, 2016, following discussions that ended on December 15, 2015, with the officials of India on economic developments and policies.

Based on information available at the time of these discussions, the staff report was completed on January 27, 2016.

First Published: Thu, March 03 2016. 13:35 IST