Fighting inflation

| Updated on March 19, 2011 Published on March 19, 2011

The Reserve Bank of India, in its quarterly policy review, is trying to halt inflation, by raising the repo and reverse repo rates by 25 basis points to 6.75 per cent and 5.75 per cent respectively.

In spite of the rate hikes, the inflationary pressure continues.As pointed out in the editorial, ( Business Line, March 18), this is only a symbolic action on the part of central bank, which will have only little impact. More meaningful and result-oriented action is necessary from the part of government to control prices and tame inflation.

V. Prabhakaran Nair


Textbook solution

Though “the hike in policy rates would make little difference”, the interest income of the RBI and, consequently, the overall cost to the economy too would certainly go up.

Second, by tinkering with the rates, which is a textbook solution, “the central bank has merely gone through the motions of doing something to combat inflation”. It is nevertheless gaining the attention of the general public to itself, despite the well-known fact that it has no effective, or other useful, tools.


Intermediation cost

You have rightly said that “inflation in the domestic economy at the consumer level is primarily a problem of high intermediation cost between producers and consumers in the agricultural sector, compounded by administrative failures…” The intermediation cost can be termed also as “the price differential”.

K. Mundanad

Published on March 19, 2011
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