The International Monetary Fund has recommended a tighter monetary policy and targeted social security programmes to tackle inflation following food and fuel price increase in low-income countries like India.
'To bring inflation back under control will require a robust monetary policy stance and the avoidance of unsustainable wage increases. Second, a shift to targeted social safety net programmes to protect the poor in a more cost-effective manner is needed,' an IMF statement said in New Delhi on September 25.
The fund said oil prices are still at double the levels recorded in end-2006, even after the 40 per cent fall in prices from the peak they reached in July this year. Food prices too are still above end-2006 levels. Because of this twin increase in prices, fuel importing low-income countries will see their import bill increase by 3.2 per cent of their GDP, while food importing countries will spend additional amount equivalent to 0.8 per cent of GDP on food.
"From a macro-economic perspective, we see the effects in weakening balance-of-payments positions and national budgets, and acceleration of inflation," said IMF Managing Director Dominique Strauss-Kahn.
Inflation for low-income countries has increased by 3 percentage points in the second quarter (April-June) of 2008, the statement added.
To tackle the problem of price rise, the executive board of IMF has changed its credit line -- the exogenous shocks facility -- which makes it easier for the affected countries to receive financial support.
