IMF advises caution on policy easing to India

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Noting that the global recovery had suffered a setback, the International Monetary Fund (IMF) has advised India and other emerging economies with high inflation and public debt to take a cautious stance to policy easing.

"In emerging economies, the priority is to ensure a soft landing as domestic growth slows amid a deteriorating external environment and volatile capital flows," it said in a staff note prepared for last week's G-20 Finance Ministers' meeting in Mexico City.

"Monetary policies can be eased in economies with diminishing inflationary pressure," it said in the note released publicly here on Thursday.

But in those economies like India 'with relatively high inflation and public debt, policy space is more limited, warranting a more cautious stance toward policy easing'.

Collective action to address global imbalances can help ensure a return to strong, sustainable, and balanced growth, IMF said.

"This will require further deleveraging by households in advanced deficit economies, and policies encouraging more inclusive growth and lower saving in emerging surplus economies."

"In emerging economies, the focus should be on responding to moderating demand, while dealing with volatile capital flows," IMF said suggesting "appropriate policy response" depending on the varying circumstances.

"In countries with high inflation and public debt, including India and some economies in the Middle East, a cautious stance to policy easing is required," it said.

Global activity will slow in 2012, the IMF predicted saying, "The euro area is still expected to enter a mild recession, and other advanced economies are likely to experience weak and bumpy growth."

"In emerging economies, growth is expected to continue moderating, reflecting past policy tightening and adverse spillovers from advanced economies," it said.

"Risks to global growth remain squarely to the downside, although recent policies and financial market developments have lowered the probability of a sharp global slowdown," IMF said.