IMF praises RBI for tightening the monetary policy to curb inflation

The International Monetary Fund (IMF) on Tuesday praised the Reserve bank of India (RBI) for tightening the monetary policy to curb inflation in the country.

The RBI has appropriately been tightening to fight inflation as the inflation is above target, and since May, if my memory serves me well, it sort of delivers 190 basis points rate hikes and we think further tightening is needed to bring inflation to its target, Garcia Pascual, Deputy Division Chief of the Monetary and Capital Markets Department of the IMF, told reporters at a news conference here.

Tobias Adrian, Financial Counsellor and Director of the Monetary and Capital Markets Department of the IMF, said that monetary policy has tightened in India, similar to other emerging markets as well, where inflation has been above target.

And certainly, inflation has been above the RBIs target recently, so we do expect a tightening of monetary policy going forward as well, he said in response to a question.

In terms of financial stability, there are some pre-existing vulnerabilities, both in the banks and in the non-banking system, in India that is certainly still there and that is a cause of concern, he said.

We have flagged them in the Financial Sector Assessment Programme that we did in India some time ago, but some of these issues remain in India, Adrian said.

In response to a question, Pascual said on financial stability, the issues are longstanding, and they pertain both to the bank and nonbank.

On the banking side, I think the issue is related to prudent underwriting standards to have adequate and build further capital, so recognise problem loans because that can be a drag, he said.

If they are left on the balance sheet, it can be a drag to future lending and the recovery of the banking system, and those we see as the key issues, Pascual said.

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