RBI raises interest rates again -Yet forecasts inflation to grow

Reserve Bank of India Logo

: Chennai, 18 March, 2011

The Reserve Bank had been declaring that its principle focus was to control the rising inflation of the country. With this motive, on 17th March, the RBI raised the interest rates for the eighth time in the last one year. It raised the policy rates by 25 bps, the repo rate (the lending rate) to 6.75% and  and the reverse repo rate (the borrowing rate) to 5.75%, only the CRR being left untouched. However what is really a disturbing news for the common men as well as business world is that the Bank has forecasted the Inflation in the country to rise from 8% from 7% by March end. This is a clear sign of the failure of the RBI in controlling inflation, in spite of the RBI declaring as its utmost priority!

The bankers and bureaucrats of the country are found welcoming the new rates and the move by RBI, calling it a fine job by the Reserve Bank. But some key points seems to be neglected in this declaration of RBI’s new increased rates. With growing uncertainties in the world market due to unrest in Africa and middle east, Japan’s devastation, etc it is a crucial time for the economic growth of the country. The high repo rates and the deposit rates clearly shows that Banks are low with money, and it would have been better for the RBI to at least not play around for the rates for a while. Else the potential growth of the country itself will be adversely affected. With Japan’s nuclear devastation, the price of oil and gas would at least not grow much in the near future which can be used for optimizing the country’s growth potential. The increased rates would definitely set back the big projects of the country with losses and growth discussions are at a risk of bringing no results.

The RBI has been increasing rates seven times in the last one year, only for the country to witness a continued increasing trend of inflation and downward rate of industrial growth. Its evident that the monetary policy of increasing interest rates to bring down inflation is not working and the authorities need to think about overall development of industries (both small and large scale). This brings to us with a genuine concern, – whether the Reserve Bank is out of real options or it has become a purchased tool of the capitalists of the country, whom inflation would always help .

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