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Krishna Srinivasan from the International Monetary Fund (IMF) has recently urged the Reserve Bank of India (RBI) to sustain its current monetary policy until inflation is subdued. In a Tuesday interview with Deepshikha Sikarwar in Marrakech, Srinivasan highlighted there’s no urgency to cut interest rates given the potential risks.
Srinivasan warned of the potential impact of rising oil prices on global output and inflation. A 10% rise in oil prices could cause a 0.15 basis point drop in global output and a 0.4 percentage point increase in global inflation next year, he said. This scenario presents an upside risk to inflation that central banks should consider before easing monetary policies.
The IMF official applauded the RBI’s decision to strengthen monetary policy in response to inflation exceeding target levels. He stressed the need for fiscal caution and advocated for a conservative approach on both monetary and fiscal fronts. This strategy, he suggested, would help suppress inflation, establish fiscal buffers, and allow room for crucial long-term reforms during a period of potentially prolonged high-interest rates.
Turning his attention to China’s economic future, Srinivasan predicted a growth rate of 5% this year, 4.2% next year, and a long-term rate of 3.4% by 2028 under a baseline scenario without reforms. He flagged China’s slowing economy as a regional risk due to its significant role in global value chains, which could potentially impact four countries.
Srinivasan’s comments underscore the IMF’s concern about the potential risks associated with premature easing of monetary policies amid ongoing inflationary pressures. The organization’s call for sustained fiscal caution comes at a time when central banks worldwide are grappling with how best to respond to these challenges while also fostering economic recovery and growth.
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