India needs tighter policy to prevent asset bubbles: OECD

LONDON/NEW DELHI: OECD, a grouping of mostly developed nations, today warned that emerging economies are facing a danger of overheating and called for much tighter monetary policies in countries like India and China to stave off asset price bubbles.

"Overheating in emerging-market economies poses a serious risk," the Organisation for Economic Cooperation and Development (OECD) said.

"A boom-bust scenario cannot be ruled out, requiring a much stronger tightening of monetary policy in some non-OECD countries, including China and India, to counter inflationary pressures and reduce risk of asset-price bubbles," Paris-based OECD said in its latest economic outlook report.

Overheating generally refers to a situation where demand excessively outstrips supply, resulting in exorbitant rise in prices.

The suggestion by the grouping, whose member countries account for over 60 per cent of world economy, about tighter monetary stance came even as there are indications that RBI would pause its hawkish policy amid fall in inflation and industrial growth.

Crisil's chief economist D K Joshi said the threat of overheating of the economy because of excess demand in comparison with supply is not as much there, but prices are rising in some areas, particularly in stock market due to high inflow of foreign funds.

He noted that prices of residential property have also risen, but RBI has been proactive.

"The problem of overheating may be there if RBI has been following loose monetary policy," Joshi said.

RBI has raised its short term lending (repo) and borrowing (reverse repo) rates for the sixth time by 150 and 200 basis points respectively this year till November.

With inflation coming down to 8.58 per cent in October and industrial growth falling to 16-month low of 4.4 per cent in September, RBI is expected to press a pause button in its monetary stance.