Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: 4.8
Article rating: 5.0
Article rating: 3.0
Article rating: No rating
Article rating: 5.0
Article rating: No rating
Article rating: No rating
Article rating: 4.5
Article rating: No rating
Article rating: No rating
Article rating: 4.2
Article rating: 5.0
Article rating: 4.0
Article rating: No rating
Article rating: No rating


RBI needs to gradually tighten monetary policy: IMF

Author: PTI/Wednesday, August 8, 2018/Categories: Regulatory

RBI needs to gradually tighten monetary policy: IMF

New Delhi, Aug 8 - The Reserve Bank of India needs to gradually tighten monetary policy in view of inflationary pressure due to higher oil prices, increase in Khariff MSP and possible fiscal slippages, the International Monetary Fund (IMF) said today.

The report comes within days of the RBI raising benchmark short term lending rate (repo) by 25 basis points to 6.5% citing inflationary concerns. It was the second such hike in a row.

The IMF said the monetary policy tightening in early June was appropriate and further gradual tightening will be needed.

"The RBI will need to gradually tighten policy further, in response to inflation pressures, which will help to build monetary policy credibility," the report said.

It noted that headline and core inflation are rising and forecast to be above the mid-point of the headline inflation target band in the near and medium term, raising the probability that adverse shocks could push headline inflation above the RBI's target range (4%, +, - 2%) and calling for a tighter stance.

With demand recovering and rising oil prices, medium-term headline inflation has risen to 4.9% in May 2018, above the mid-point of the RBI's headline inflation target band, said the Washington-headquartered multilateral lending agency.

As per the IMF, inflation risks are tilted to the upside — including from higher oil prices, potential changes to minimum support prices (MSPs), exchange rate depreciation, possible fiscal slippages, second-round effects from state-level increases in HRAs, and recently-announced increased import duties.

"Tighter monetary policy will, however, make it more challenging to revive the credit cycle," it said.

The IMF further said that to enable the RBI to achieve the medium-term inflation target on a sustained basis continued action to improve the monetary transmission mechanism is needed.

Having established a robust institutional framework for monetary policy, key next steps include enhancing competition in the banking system, encouraging banks to streamline credit pricing, addressing fragmentation of interbank markets, and continuing to enhance communication, it added.

Print Rate this article:
No rating

Number of views (236)/Comments (0)

rajyashree guha


Other posts by PTI
Contact author

Leave a comment

Add comment



Ask the Finapolis.

I'm not a robot
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest



The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free