Relation between Monetary Policy and Inflation

Increasing Home Loan Interest Rates

There has been a series of so called baby steps in the monetary policy rates observed over a period of last 18 months, where a steep increase of rates for more than 13 times, resulting in increase of 350 basis points in Repo and Reverse repo rates.  This step has attracted deplore among various quarter of different industries mainly from automobile, banking, and Realtor sector.  And the condition further got worse on currency devaluation, where companies are ended up paying a higher price for the same import quantity they make, and thus forcing them to pass on the burden on the end consumer, thus increasing the prices. Thus leading to an economic slowdown.

As it is an supply driven inflation, the changes in the interest rates over a period dint incidental any major changes in curbing the inflation, but it had a slight impact reducing the inflation rates to some extent. RBI has to aware that, at this point of threat from bad to worse global situation externally, and surging rupee rate, high inflation, lower than projected economic growth, and a call to decrease the interest rates, along with a siren pleading for CRR reduction should be attended.

There shouldn’t be any changes in the Interest rates and CRR rates at least for a short period, because move in the either side could result in negative growth for the whole economy, and further steps has to be taken considering the impact on each and every segment over a period of time, ensuring for an long period growth rather for short.