IMF supports India's tightening of monetary policy

The International Monetary Fund (IMF) has said the tightening of monetary policy by India is an 'appropriate' step, as the country is faced with high inflation and needs to consolidate the fiscal measures initiated during the slowdown.

"India is relatively more closed, and has relied on stimulus to support growth. The main challenge will be to ensure durable fiscal consolidation, including by implementing fiscal and other structural reforms," Abdul Abaid, senior economist in the World Economic Studies Division of the IMF, said at a news conference held at its headquarters here yesterday.

He said in relation to other countries in the Asian region, India has high inflation, and the tightening of monetary policy currently under way is appropriate.

Referring to the latest World Economic Outlook, he said in India, growth is projected to be 8.8 per cent in 2010, and 8.4 per cent in 2011, which is supported by rising private domestic demand.

"Consumption will strengthen as the labour market improves, and investment is expected to be boosted by strong profitability, rising business confidence, and favourable financing conditions," he said.

In India's neighbourhood, Nepal's real GDP growth is expected to slow to three per cent in 2009-10 from 4.7 per cent in 2008-09 due to poor monsoon and softer remittances, but growth is anticipated to strengthen again in 2010-11, said the IMF official.

For Sri Lanka the IMF projects an acceleration in growth from 3.5 per cent last year to 5.5 per cent this year.

"There is currently an IMF programme, which we can't comment on, the key priority in Sri Lanka is basically to obtain a credible and sustainable reduction in the fiscal deficit going forward. That is the main vulnerability there right now," he said.