Maintain tightening bias due to increased inflation pressure: IMF to RBI

The hawkish mood at the Monetary Policy Committee (MPC) has found an agreement in the International Monetary Fund (IMF). 

"In India, given increased inflation pressure, monetary policy should maintain a tightening bias," IMF said in its Regional Economic Outlook: Asia and Pacific (REO). 

The advice came at a time when oil poses an upside risk to the inflation.  

Earlier, the MPC had raised several areas of concerns, including high and volatile crude prices. The other areas were an increase in minimum support prices for farmers, house rent allowance (HRA) revision and volatile crude oil prices, indicating a tightening of the policy regime in the coming months.

The MPC had, however, kept the repo rate unchanged at 6 per cent in its April review. Consumer Price Index-based inflation dropped to 4.28 per cent in March, from 4.44 per cent in February. The numbers for April will come by Friday. The Fund kept economic growth projections for India at 7.4 per cent in the current financial year and 7.8 per cent for 2019-20, as it recovers from the impact of demonetisation and goods and services tax rollout.

Asia continues to be the main engine of the world's economy, accounting for more than 60 per cent of global growth. Three-quarters of which comes from China and India alone, it said. "But, there are risks and challenges ahead, including one from a tightening of global financial conditions, a shift toward inward-looking policies, and - over the longer run - population aging, slowing productivity growth and rise of the digital economy."

Asia is expected to grow 5.6 per cent this year and the next, it said, adding the outlook is supported by strong global demand, and still accommodative policies and financial conditions. 

China is projected to grow 6.6 per cent the current year and 6.4 per cent next year.

Noting that present rates of inflation in Asia are some of the lowest in decades, it said there was some upward movement since September 2017, on the back of rising oil prices.