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Circumscribed by Consumer Prices

The RBIs monetary management has increasingly been relegated to CPI inflation targeting.

The Reserve Bank of India (RBI) has indulged in one more Pavlovian response to the self-propagated inflationary expectations by increasing the policy (repo) rate for the second time in succession—first from 6% to 6.25% and further to 6.50%—along with similar quarter percentage point increases in the reverse repo rate, the marginal standing facility rate, and the bank rate. The objective is to push up the cost of liquid funds supplied by the RBI to the banks and consequently make bank loans more expensive for the borrowers; potentially to contain retail inflation within the mandated range.

It is indeed disconcerting that in the management of the national economy the two potent instruments of public policies—fiscal and monetary—have been pigeonholed into a narrow groove of the liberal economic framework, barring them from serving the wider objectives of higher growth, more employment opportunities, and diminishing social inequalities. The path of fiscal consolidation has led to inadequate allocation of public funds for social sectors, where India’s progress stands behind many peer countries. The incidence of such a phenomenon has further widened inequalities in the system.

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Updated On : 28th Aug, 2018

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