<\/p>\n
News<\/span><\/b>: <\/span>Recently, the central bank\u2019s monetary policy committee had decided to hold benchmark interest rates (remain accommodative)<\/em>.<\/span><\/p>\n However, it has declared to withdraw the <\/span>accommodative monetary policy measure<\/span><\/b> to ensure that inflation remains within the RBI\u2019s target limit.\u00a0<\/span>\u00a0<\/span><\/p>\n In the last two years, there has been high inflation and real growth has also been zero. Both of these can be a disaster.<\/span>\u00a0<\/span><\/p>\n Inflation in India is measured by the Consumer Price Index (CPI). The CPI Index has stayed above 6%\u202ffor three months running. It is above the Reserve Bank of India\u2019s upper tolerance limit.<\/span>\u00a0<\/span><\/p>\n What are the causes of high inflation?<\/span><\/b>\u00a0<\/span><\/p>\n High commodity prices like oil prices, edible oil prices, fertilizers, chemicals, feedstock etc<\/span><\/p>\n All-round supply chain disruptions – <\/span>The present <\/span>geopolitical uncertainty<\/span><\/b> in Ukraine has led to <\/span>supply-chain disruptions<\/span><\/b>. <\/span><\/p>\n In India, inflation is also caused by <\/span>supply-side shocks<\/span><\/b>. And, monetary phenomena like credit infusion often mounts NPAs pressure.<\/span>\u00a0<\/span><\/p>\n It may be difficult to contain inflation through<\/span> repo rate <\/span><\/b>and <\/span>reverse repo rate<\/span><\/b> adjustments<\/span><\/b>. <\/span><\/p>\n The RBI\u2019s <\/span>monetary policy framework<\/span><\/b> is extremely complex. It targets only <\/span>one macro variables<\/span><\/b> i.e., inflation, and neglects other variables like growth, jobs, external balance, financial stability which are interrelated<\/span>\u00a0<\/span><\/p>\n The RBI has, therefore, failed to control the <\/span>inflation curve.<\/span><\/b> I<\/span>t has revised the <\/span>inflation estimate <\/span><\/b>a number of times.<\/span><\/p>\n A high <\/span>output gap<\/span><\/b> is being projected in a number of reports. In fact, the <\/span>rules-based monetary macro framework<\/span><\/b> is going to be inadequate<\/span> to deal with this<\/span>.<\/span><\/b>\u00a0<\/span><\/p>\n The growth projections are based on the assumption that the Indian economy is experiencing<\/span> cyclicity<\/span><\/b> and the monetary policy can correct it. However, there may be chances that the Indian economy may be facing other challenges (like GST, Demonetization etc.). In this scenario, the monetary policy acting as a <\/span>counter-cyclical policy tool<\/span><\/b> will not work.\u00a0<\/span><\/p>\n The <\/span>repo rates hike<\/span><\/b> and <\/span>liquidity tightening <\/span><\/b>works when there\u2019s a lot of credit growth (around 25-30% credit growth). It works to contain aggregate demand and money supply. However, India\u2019<\/span> credit growth<\/span><\/b> has been 7.5% for the last two years. Thus, credit growth is not causing inflation in India.<\/span>\u00a0<\/span><\/p>\n There have been <\/span>robust tax collections<\/span><\/b> due to <\/span>formalisation<\/span><\/b>. In addition, there have been <\/span>record currency reserves <\/span><\/b>which can act as a buffer for now.<\/span>\u00a0<\/span><\/p>\n Market sentiment<\/span><\/b> is a key factor. Globally, most of the central banks are tightening monetary policy. Therefore, RBI has done good to maintain <\/span>positive sentiment.<\/span><\/b> The move to contain inflation will increase the RBI\u2019s <\/span>credibility<\/span><\/b>.\u00a0<\/span>\u00a0<\/span><\/p>\n A high fiscal deficit should be substantiated through enhanced investment. There has to be focus on<\/span> \u2018crowding in\u2019<\/span><\/b> private corporate investment.<\/span>\u00a0<\/span><\/p>\n The RBI has introduced a new tool known as <\/span>the standing deposit facility rate <\/span><\/b>(3.75%) to absorb excess liquidity.<\/span>\u00a0<\/span><\/p>\n The RBI should work upon improving the <\/span>government bond yields<\/span><\/b>. It will improve the return for <\/span>long-term bonds<\/span><\/b>, reduce inequality, control inflation, and manage financial stability.<\/span>\u00a0<\/span><\/p>\n Efforts should be made to create jobs and increase the output of the Indian Economy. The boost to real economy can improve all our macro variables.<\/span>\u00a0<\/span><\/p>\n On the fiscal policy side<\/span><\/b>, the government should provide <\/span>\u2018participation income\u2019<\/span><\/b> (not \u2018basic income\u2019) in the hands of people. It should be done by providing guaranteed jobs. It can tackle inflation.\u00a0<\/span>\u00a0<\/span><\/p>\n There has to be<\/span> fiscal-monetary policy coordination<\/span><\/b> through <\/span>monetisation of the deficit<\/span><\/b>. It<\/span> can steer growth and creation of \u2018<\/span>employment<\/span><\/b>\u2019 because the <\/span>full employment equilibrium<\/span><\/b>,<\/span> is well below in the Indian economy.<\/span>\u00a0<\/span><\/p>\n The government needs to conduct the<\/span> Consumer Expenditure Survey<\/span><\/b> in 2022-23. It will compensate for the weaknesses of the CPI basket.<\/span>\u00a0<\/span><\/p>\n Source<\/span><\/b>: The post is based on an article \u201cIs the Reserve Bank doing enough to rein in inflation<\/strong>\u201d published in The Hindu<\/strong> on 15<\/strong><\/span>th<\/strong> April 2022<\/strong>.<\/span>\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":" News: Recently, the central bank\u2019s monetary policy committee had decided to hold benchmark interest rates (remain accommodative). However, it has declared to withdraw the accommodative monetary policy measure to ensure that inflation remains within the RBI\u2019s target limit.\u00a0\u00a0 In the last two years, there has been high inflation and real growth has also been zero.… Continue reading Is the Reserve Bank doing enough to rein in inflation?\u00a0<\/span><\/a><\/p>\n","protected":false},"author":10328,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10498],"class_list":["post-179512","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-the-hindu","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704824020},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/179512","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10328"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=179512"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/179512\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=179512"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=179512"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=179512"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Are the RBI actions enough to arrest inflation?\u00a0<\/span><\/b>\u00a0<\/span><\/h5>\n
What are the good signs?<\/span><\/b>\u00a0<\/span><\/h5>\n
What can be done to control inflation?\u00a0<\/span><\/b>\u00a0<\/span><\/h5>\n