IMF welcomes Reserve Bank decision to hike interest rates

The IMF on Friday welcomed as an appropriate step the decision of the Reserve Bank of India (RBI) to increase the repo rate by 25 basis point to 6.25% amid rising inflation and additional upside risks due to higher oil prices.

In its second bi-monthly monetary policy of the current fiscal, the Reserve Bank of India on Wednesday hiked the key short-term lending rate by 0.25% after a gap of about four-and-half years. The current repo rate stands at 6.25%.

“We welcome the Reserve Bank of India’s decision to increase the policy rate by 25 basis points,” International Monetary Fund Spokesman Gerry Rice told reporters during his bi-weekly news conference here. In the context of rising inflation and additional upside risks due to higher oil prices, exchange rate depreciation and other domestic factors, the IMF thinks that this was an appropriate step by the RBI, Rice said.

He was responding to a question on the decision of the RBI to increase the interest rate for the first time in the last four years. It was in January 2014 that the RBI had increased the repo rate to eight per cent to keep the inflation under check.

Solving banking crisis

Meanwhile, the IMF said that India must address the ongoing crisis in its banking sector to support investment and inclusive growth agenda. Rice said that Indian authorities have made progress in addressing the stock of non-performing assets and were taking further measures to deal with the flow problem.

“Addressing the banking sector balance sheet issues and improving the performance of particular public sector banks is a very important issue for India to support investment and its inclusive growth agenda,” he said.

“These steps include the recognition of these non-performing assets, the resolution framework under the Insolvency and Bankruptcy Code. It’s in an early stage, but we think that’s an encouraging development,” Rice said.

NPAs touched Rs 8.31 lakh crore at end-December 2017. he said that it was a positive step as a more proactive approach was being taken to identify and closely monitor asset quality issues.