Certain important data that needs to put forward here:
Current inflation(Year 2009):
WPI: 11.9%
CPI: 9.63%
Containing the above figures has become a very important necessity for RBI. This particular need has begun to be met in the policy. RBI has raised its key lending rates i.e. CRR(Cash Reserve Ratio), Repo rate & Reverse Repo rate by 25 basis points(bps), thus making current figures at CRR: 6%, Repo rate: 5.25%, Reverse Repo rate: 3.75%.Moreover the rates are lokely to be increased further. RBI's present stance shows that it is now determined to return to "pre-crisis" era & contain the above 10% inflation(WPI inflation). Our economy has now entered the expansion period. Here seems a bigger challenges for Mr. Subbarao as the margin of errors can be quite large here.
Now, increasing the floor & ceiling limit of interest rates(reverse repo & repo rates respectively) means that the excess liquidity flow is to be contained & needs an increase in cost of money(i.e. interest rates). This would ensure that inflation remains at healthy levels & doesn't march towards a running or a galloping one. Good day readers.
Bhagirath Baria
- Bhagirath Baria
- The Author of this blog has keen interest in understanding Economics and its implications on the Individual and the Economy as a whole. Has been writing articles and analysis of issues that may skip general observation, but exert deep influence on people's lives and their decisions. Discussions and Debates related to conventional as well as non-conventional Economics is done here. The author of this blog doesn't classify himself to any particular School of thought in Economics. He is tilted toward Mainstream Economics, though has keen interest in a few Heterodox schools too. Wishing all the readers a truly enriching experience.
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