With inflation remaining stubbornly high, the RBI raised the rates again today. This was necessary and was widely predicted . It also is unfortunate. High interest rates will dampen demand. Sales of cars which were growing at a healthy rate in the last few months have seen a slowdown for the month of April. Home loans are sure to get dearer.
Today's high inflation in India has nothing to do with loose monetary policy. It is just the result of a surge in demand from a rapidly recovering economy.Most of the reasons for inflation are out of RBI's control anyway. Trouble in the middle east causing a spike in fuel prices, a dilapidated supply side causing food price rises hardly have anything to do with the interest rates.Despite the rate hike, RBI doesn't see things getting better really soon.
The supply side issues such as prevention of food wastage, creaky infrastructure which stands in the way of a nimbler food retail business will take several years if not decades to solve. The results of poor policy responses and lack of good governance in the last few decades are becoming evident with every passing month.
If we are lucky, we will start tackling these problems more effectively now. And maybe in the decade of 2020's we will see a stabler inflation outlook.
Today's high inflation in India has nothing to do with loose monetary policy. It is just the result of a surge in demand from a rapidly recovering economy.Most of the reasons for inflation are out of RBI's control anyway. Trouble in the middle east causing a spike in fuel prices, a dilapidated supply side causing food price rises hardly have anything to do with the interest rates.Despite the rate hike, RBI doesn't see things getting better really soon.
The supply side issues such as prevention of food wastage, creaky infrastructure which stands in the way of a nimbler food retail business will take several years if not decades to solve. The results of poor policy responses and lack of good governance in the last few decades are becoming evident with every passing month.
If we are lucky, we will start tackling these problems more effectively now. And maybe in the decade of 2020's we will see a stabler inflation outlook.
No comments:
Post a Comment