ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Quenching the Inflation Fire

The current surge in inflation is not receiving the urgent attention that is needed from the government. Alongside a rise in wholesale price inflation, uncertainty and risk have increased. Consumer price inflation is also ruling at an unacceptably high level. The explanations that are offered are many, but it is clear that both supply and demand factors are at work behind the acceleration in inflation. Increase in inflation variability, which is indicative of uncertainty associated with the inflation rate, would place a higher premium on inflation risk, which would, in turn, be reflected in the next upturn in the interest rate cycle. One way of mitigating the inflation risk premium and generating interest in long maturities is to issue a series of inflation indexed bonds with an assured real return in the range of 2 to 3%.

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