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Should the RBI tighten monetary policy to curb inflation, at the cost of economic growth?

Created by : Swati Raut, Product Manager, Aviva  | 06 16 2010 05:36:47 +0000
Industry : BankingFunctional Area : India(Markets)
Keywords : inflation rbi economic growth
Activity:  621 views;  last activity : 07 06 2010 20:18:09 +0000

Last week, there was some correction and profit booking in the stock markets. The week started with indecisiveness in the markets and a good amount of profit booking happened towards the end of the week. The main reasons for the nervousness in the markets include fears of the Reserve Bank of India (RBI) taking some monetary policy tightening measures in its quarterly review next week, China's check on bank lending to curb a possible bubble formation in its realty market , and some lesser-thanexpected numbers from bluechip companies.

http://indolinkspanish.files.wordpress.com/2009/03/bank.jpg

After touching a high of around Rs 45 per USD, the rupee weakened last week and lost around two percent against the dollar. The dollar also strengthened against the six major currencies of the world. The sharp volatility in the currency market is a cause of concern for companies that have exposure to foreign exchange in their business.

So users, do you think the RBI should tighten monetary policy to curb inflation, at the cost of economic growth?

  
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Swati, you argument is right. But Monetary and non monetary measures are not much helpful to control the inflation from last few years. Although the figures of inflation were down last year due to various reason. More liquidity of money in the market is also a major reason for inflation. According to a survey, middle class people are spending too much money these days due to maintain the status in society. They are spending money not only for goods necessary for living but also luxuries.. These days demand is the major reason for inflation. Easily available loans, EMI schemes attract consumer to purchase extra goods...

Non monetary measures are not sufficient to control it. Monetary measures are essential right now to control liquidity in the market. Control over banks is need rather than unethical issue. It is purely ethical and legal step taken by RBI. And we are not growing more than inflation....  


By Vipin Bhasin, Private Equity/Hedge Fund/VC-Manager, Indian Investment Co.  06 19 2010 12:59:17 +0000
 
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Not at all, No bank has any right to tighten monetary policy to curb inflation, at the cost of economic growth. It is completely unethical. Rather, Investors should limit their exposure to companies that have high exposure to cross currency movements, especially the small-cap companies that do not have the scale for aggressive currency hedging.
By Swati Raut, Product Manager, Aviva  06 16 2010 05:36:47 +0000
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DOES OUR ECONOMIC GROWTH HELP US IN ANYWAY WHEN 

RATE OF INFLATION KEEPS ON GROWING?
By s.baalu , Consultant, XYZ LTD  | 06 29 2010 11:16:37 +0000
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Hi everybody

..............  Latest : 25/06/10 : 6=30 PM

The Economic Times 'Snap Poll' result : Whether Intt rate should be hiked ? Hundred percent said " Yes" ... I have never seen before.

In the evening : The shrewed Govt. increased the price of diesel, cooking gas etc. U mean, RBI will seat tight ???

...................................

At RBI, may be a team of 200 experts are keeping watch on Indian Economy on daily basis. They might be 'verifying' different 'data' on weekly basis to see where the economy  of the country/ world is heading.

The core team, a small one, headed by the Govornor might be consulting similar people in Ministry of Finance , GOI to 'check' their views.

Before any announcement is made, the Govornor may again consult Deputy Govornors and/ or similar high officials specially from their offices at Kolkata, Mumbai, Chennai and Delhi. ( some system are there ...  !)

Happenings in Stock Market and Currency Hedging : ? ? ?

 

 
By ASOKE KUSARI, Domestic Private Banking-Executive/Manager, A large leading PSU Bank - India  | 06 25 2010 13:10:00 +0000
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Due consideration should be given to supply side factors. Agriculture in India has been a perfect example for productivity disaster. Strong steps should be taken against ineffective or fraudulent distribution and marketing and any action to fix prices and profit from rising prices should be dealt seriously. Having a consumption pattern based on seasonal products and promoting vegetable gardens in every house will be very rewarding in the long term.

And once this is done, the government can look for temporary monetary tightening at the expense of economic growth, if unavoidable. The supply side improvements will bring more flexibility soon. But like always, let see how the monsoon goes.  
By Padmanabhan R, Articled / Audit assistant, Finance student  | 06 21 2010 19:32:24 +0000
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The RBI uses various measures to monitor and control the monetary policy. Thus, economic growth should not be stifled. It can be managed by using other alternative measures.....
By Badri N Srinivasan, Head - Quality, Valtech India Systems Pvt. Ltd.  | 06 17 2010 18:36:02 +0000
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Thanks for the referrral Ms.Swati Raut.

In my opinion it is not advisable at the cost of economic growth.It would be better to control the circulation of black money and also the govt should keep enough gold in reserve to print the currencies in proportionate to the gold reserve. I think we are printing more currencies than the gold reserve to meet the immediate needs emanating.

Normally the RBI takes such steps to control the inflation and the RBI could find out some others measures to control inflation without affecting the economic growth.  
By NATTERAJA R. ARIKRISHNAN, GM-Projects, Bentec Electricals & Electronics Pvt. Ltd  | 06 16 2010 16:06:01 +0000
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