the inflation then how will the 13th time be any different.
It is known to everyone that the inflation is being fuelled by supply side constraints , be it manufactured goods or food grains.
By raising rates RBI has ensured the growth slowly down which in turn will bring down production of goods and hence reduce supply.
This would further increase the inflation rates. RBI could have taken an alternative
approach and paused in the last monetary review . By reducing the growth rate of the economy RBI
may push inflation higher as demand will remain strong , it’s the supply side which will get constrained with the sluggish growth.
This will backfire on the RBI in coming quarters as I expect inflation to remain 9% and thereabouts in the coming 2 quarters. I hope I am wrong.
Courtesy -
2 comments:
I have 2 comments on this
1.RBI rate hike will reduce growth (supply) and because liquidity is less demand will also shrink
2.If I think about only petrol,the prices have increased 12 times in last 1 year or so. now even if RBI increases the rates this inflation is not going to stop.
I think RBI is taking cautious steps. A small %age decrease in short run growth shall not be taken as indicator for slow down, instead we shall think about the long term.
RBI has definitely been using only one tool,interest rate hike to check inflation. I have read, and agree also, that the timing of such increase is not right.
Food inflation is going high due to various other factors ( I will try to write an article on that ;-)) .. But as Vallabh pointed out I do hope that in the long run the RBI policy does help. But for now the RBI will try to use other tools !!!!
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