Article;
RBI hikes repo rate by 25 bps to 7.75 cuts MSF by 25 bps.
Comment;
The repo-rate hike was expected but the MSF
reduction undermines the RBI's credibility against inflation... MSF will affect
short-term demand and given the volatility in retail prices which are mainly
short-term prices (perishables), we need to control demand... We (in Economics)
assume that inflation is a short-term phenomenon; in the long-run we assume
zero-inflation. Therefore we need to target inflation in the short term using
short term measures like MSF... I think the Governor should have used MSF to
restrict short-term liquidity to control demand in the short-run... (Probably)
the RBI is using wrong levers to tame demand. If inflation exists in the
short-run we also need to use short-term measures like MSF...
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