India’s future interest rate hikes should be carefully calibrated and its intervention in the foreign exchange market should be limited to managing volatility, the International Monetary Fund (IMF) said on Friday.
The Reserve Bank of India (RBI) has raised its key policy rate by 225 basis points since May, taking the rate to the highest in over three years.
“Inflation pressures have led to an appropriate shift towards policy tightening,” IMF said in an annual consultation report. The report is prepared by IMF staff in accordance with its Article IV of Agreement, which requires the fund to hold annual consultations with officials from member states about economic development and policies.
“Additional tightening should be carefully calibrated and communicated,” it added.
Last week, minutes of the RBI’s monetary policy meeting showed a majority of rate-setters were concerned about elevated inflation and felt the central bank could not afford to prematurely pause its rate tightening cycle.
The IMF projected inflation at 6.9% for the current fiscal year that ends on March 31, 2023 and said price gains would moderate gradually.
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