IMF tells India not to raise policy rate

Friday, September 11, 2009

LAHORE: The International Monetary Fund either adopts country specific policies on bank mark-up or perhaps deliberately waits for an economy to bog down before suggesting a hike in interest rates as is evident from its advice to keeping current policy rates to India. The inflation in India is on rise it crossed 8 per cent in August with fear that the drought would further impact food prices and inflation. The policy rate in India is 3.5 per cent. Even at such low policy rate IMF has advised India not to increase it on the fear of stalling economic recovery. Pakistan on the other hand is still being pressed to keep a check on its interest rates though the inflation has halved from a peak of 25 per cent last October 2008 to 12 per cent in June 2009. The central bank of Pakistan during this period has decreased its policy rates by 3 per cent from 16 to 13 per cent. This has stifled demand of private sector credit. In fact the private sector has shown negative credit growth during past seven months. Kalpana Kochhar the Asia Pacific Deputy Director of IMF told media at the sidelines of an event that he believes it is too early to withdraw policies that have ensured liquidity and monetary easing in India. He said there are signs of the Indian economy recovering, but it is prudent to wait and see that these signs become well established Kochhar warned that unwinding the stimulus policies would be led by withdrawal of liquidity which would be followed by rate hikes. The most interesting observation he made about increasing inflation in India was that it was supply-driven and it certainly complicates matters. But even then he opined that it has not driven at this point by runaway demand and overheating....

Want to read full story? visit finance.kalpoint.com now!