RBI fails again – Inflation mocks Government Prediction

Date- April 17, 2011 | Place- New Delhi

Proving an absolute failure by the Finance Ministry as well as the Reserve Bank of India (RBI) in controlling inflation, the annual average inflation rate in the country has climbed up to a record high of 9.4%. This comes as a grave concern as the rate of average inflation in the previous year of 2009-10 was a low 3.6%.

It is to be noted that exactly a month ago on March 17th, the Reserve bank of India had raised the interest rates for the eighth time in the last twelve months. The policy rates were raised by 25 bps, the repo rate (the lending rate) rose to 6.75% and the reverse repo rate (the borrowing rate) rose to 5.75%. This was all with a big claim by the RBI that controlling inflation was their first priority and that the increase in interest rates would bring down inflation in the country. In fact, the Reserve Bank had forecasted that with the increase in interest rates, the inflation would be limited to 8% by end of March. However with the inflation in March rising to about 9% (8.98% accurately), the projections of both the finance ministry and the Reserve Bank of India (RBI) has been proved to be wrong.

The Indian Government is continuously making big claims about India’s high growth rate and using it as a principal political campaign. However, if the inflation continues with the same increasing curve, the growth in India will be unsuccessful. For the lives of 1.2 billion people of India to get better, the growth rate makes sense only when the inflation rate is under control.

It is an absolute necessity for the Reserve Bank of India to undertake additional policy changes to tighten its grip on the economy. All eyes are now on the monetary policy meeting of the RBI scheduled in May.

InflationRBIReserve Bank of India