The inflation rate, in the last few months, has been hovering around the 7.5 per cent mark.

Monetary policy involves changing the money supply in an economy to change key macro variables such as output, inflation, interest rates, employment, and exchange rates — all of which have important consequences for investment decisions. But in recent times, the Indian economy has been struggling to maintain its high growth rate, control the persistent inflation, and save the falling rupee.

For instance, in the recent March quarter, India's GDP growth rate at 5.3 per cent was the lowest in the last nine years; INR touched new lows against the US dollar consistently for a few weeks recently, losing more than 14 per cent against the US dollar in the last couple of months.

The inflation rate has also been stubbornly high in the last few months, hovering around the 7.5 per cent mark.

So the fundamental anxiety, particularly for investors, is whether monetary policy changes can successfully bring the economy back onto the growth track soon.

A quick look at the success of monetary policies in the recent past might provide some insights in that regard.

(This article was published on June 16, 2012)
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