The Hindu Business Line : Tackling inflation

The article "Return of the Reserve Ratio" (Business Line, April 4) rightly commented that in spite of its being an indirect weapon of credit control, CRR does impact the level of money supply in the economy and plays some role in the fight against inflation. The impact of the CRR hike will not distinguish as between productive credit and credit meant for consumption. This will hurt growth and the creation of assets in the economy.

Many floating rate loans have now all of a sudden become costlier and in the case of home-loans, the EMIs fixed earlier will, in many cases, stand appropriated towards the principal and loan closure delayed. Banks have also lent at 7 per cent or 7.5 per cent (fixed) in the past and they will lose out on these loans in the days to come.

Inflation has to be tackled with a long-term perspective. To reduce prices of various commodities, production has to be augmented and, by hiking loan interest rates, production will turn costlier, hurting the economy. In their anxiety to curb inflation, the RBI and the government seem to be creating conditions that might lead to the much bigger problem of economic recession and, ultimately, economic slow-down. The necessary safeguards must be put in place to ensure this does not happen.

K. K. Ammannaya

Udupi

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