In the Third Quarter Review of Annual Mo
netary Policy, 2006-07, RBI Governor Y. V. Reddy, in a so-called effort to control inflation, hiked the repo rate by 25 bps to 7.50%, while keeping the reverse repo rate steady at 6%. The apex bank, in the recent past, has tried all possible tools in its monetary arsenal, such hike in overnight rates and hike in CRR & provisioning et al, but in vain (see chart); and as B&E has brought out in earlier articles, the reason is simply because RBI has strangely failed to diagnose the real cause of inflation. According to CRISIL, a rating agency, “The current inflation scenario is dominated by supply constraints in primary articles, whereby the monetary tightening is not expected to impact much.” It seems amazing how the RBI, which should have been the unquestionable leader in macro-analysis, has become blind to the fact that there exists something called a cost push inflation too.
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netary Policy, 2006-07, RBI Governor Y. V. Reddy, in a so-called effort to control inflation, hiked the repo rate by 25 bps to 7.50%, while keeping the reverse repo rate steady at 6%. The apex bank, in the recent past, has tried all possible tools in its monetary arsenal, such hike in overnight rates and hike in CRR & provisioning et al, but in vain (see chart); and as B&E has brought out in earlier articles, the reason is simply because RBI has strangely failed to diagnose the real cause of inflation. According to CRISIL, a rating agency, “The current inflation scenario is dominated by supply constraints in primary articles, whereby the monetary tightening is not expected to impact much.” It seems amazing how the RBI, which should have been the unquestionable leader in macro-analysis, has become blind to the fact that there exists something called a cost push inflation too.For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2007
An IIPM and Malaya Chaudhuri – Arindam Chaudhuri Initiative
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