oppn parties Inflation Targeting Must Not Be At The Cost Of Growth

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Calling the case not 'rarest of rare', a court in Kolkata sentenced Sanjay Roy, the only accused in the R G Kar rape-murder case to life in prison until death
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Inflation Targeting Must Not Be At The Cost Of Growth

By Our Editorial Team
First publised on 2022-07-14 14:52:33

About the Author

Sunil Garodia The India Commentary view

Although commodity prices have started declining from the highs they had attained after the war started in Ukraine, inflation has remained elevated worldwide. The June figures showed the Consumer Price Index (CPI) was 7.01% percent in India. In the US, inflation was at 9.1% (annualized), the highest in 40 years. As the US Fed has already indicated that it will target inflation by continuously hiking policy rates until it is tamed, the FIIs are going to withdraw investments from India, putting more pressure on the rupee. If dollars become costlier, India's import bill will balloon further and that will add to inflationary pressures. This is a situation that will also lead the MPC of the RBI to hike policy rates and adopt a tight money policy by squeezing out liquidity from the market. Needless to say both these actions, although necessary to fight inflation, will ensure that there is less money to borrow and even that will come at a higher cost. In short, it will puncture growth in the short to medium term.

Normally, cost-push inflation, which is what India and the rest of the world is experiencing now, cannot be fought only by changes in monetary policy. The Centre also pitched in by making adjustments in the import and export policies of some items to cool prices in the domestic market. But the RBI was criticized for falling behind the curve and it is now making it up by pushing through rate hikes in successive MPC meetings, the first in an off-cycle action. But it has to keep in mind that consumer demand is not rising and remains subdued. Hence, growth will be stymied if rates are hiked beyond a certain level. On the other hand, India was performing well on the export front. But with recession predicted in advanced economies, demand for goods and services from such nations will drop, hitting exports too. Hence the RBI has to strike a good balance between fighting inflation and pushing growth. 

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