The Reserve Bank of India's decision to retain the policy interest rates and the CRR (cash reserve ratio) at their existing levels is entirely in line with market expectations. But the decision could not have been easy. There were strong reasons that would have justified a rate hike, or for that matter even a cut in the rate. High up in the first category is the stubbornly high inflation, which has remained above 9 per cent for 12 months in a row. Despite food inflation moderating sharply, November's inflation rate of 9.11 per cent, marginally down from the October figure, is a cause for worry. Quite ominously, the non-food manufactured product inflation, which the RBI regards as the ‘core inflation', rose to 7.9 per cent (from 7.6 per cent in October), reflecting higher input costs. The sharp upward revision of inflation figures for September to 10 per cent is another worrying development; it raises fears of similar revisions for subsequent months. On the other side, the clamour for a rate cut has centred on the fact that a rapidly slowing economy, especially in the industrial sector, requires a boost. Under the circumstances, the RBI's decision to maintain the status quo is sober and well considered. It ensures continuity in seeking to strike a balance between the often conflicting goals of reining in inflation and encouraging growth.
In its second-quarter policy statement (October 25), the central bank hinted at a pause in future interest rate hikes, while giving itself room to address short-term growth issues and concerns. While both inflation and inflation expectations are currently above the comfort level for the RBI, the pressures are likely to abate in the coming months, notwithstanding high crude prices and the sharp depreciation of the rupee. The year-end target of 7 per cent for inflation is retained. However, downside risks to growth have clearly increased owing to a combination of domestic factors and a deteriorating global economy. As matters stand, a growth rate of 7.6 per cent for the current year, projected by the RBI in October, will be difficult to achieve. The central bank is not hedging its bets when it says that “from this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth.” However, as the sharp downslide in rupee shows, monetary policy must be prepared to deal with unforeseen contingencies, many of which are likely to occur due to factors outside its domain.
In order to tackle food inflation ,The RBI has tightened the monetary policies.These might assuage inflation temporarily, but this could never be the permenant solution.
The Govt. must increase the production of crops ,by encouraging the farmers ,providing them with fertilizers,timely loans & other subsidies
Look at the world and you will have a clear picture regarding the relation between the govt and economy. If it has a stable govt with solid policy and a concrete will to implement them than it has a great possibility to have a up-warding economy. There are rumors regarding the govt and its stand. Thanks to our libelous leaders and there unanimous effort to stall sessions after sessions.
I feel this was a wrong decision by RBI to play safe by not touching the rates (both lending as well as CRR). As of now bigger problem for India is slow growth (which has shown negative trend also) than Inflation which over than 9% from past 12 months. RBI could have reduced repo rate by 50 bps or CRR by 50 bps. The latter would have freed around 35000 crores for banks to lend freely to corporate which are actually drying up of investments. But one thing good done was to intimated the market about cutting rates next policy.
Many people seem to be happy, particularly the UPA government and Congress leaders that the food inflation came down sharply in the last 2-3 weeks. I do not see why people should be elated at all by this lower inflation at this moment. During the last 6-7 years the prices went up, as much as 100-200% or more, for many items due to faulty policies or deliberate negligence of the government. Now even the inflation or even price comes down by a few percent or less because of any reason whatsoever (such as seasonal effect or temporary halt by the corporate-politicians-middleman nexus in pocketing more money), does it act as a great relief for the lower middle class or poor people in India? It is not! In addition, the price may again start to spiral upword shortly, particularly after the coming state elections.
Rising prices of goods is not inflation. Standard defintion of inflation is increse in money supply(i,e. Printing Money). Rising prices are consequence of inflation. If the money is printed excessively(Lot of printing) then it will become Hyper-Inflation as happened in Zimbabwe. If the Reserve bank stops printing money, may be rupee's downward slide can be stopped. The Market forces are always Powerful. If the market sees any currency is worthless, it will dump it(As happened in Zimbabwe).
Please Email the Editor