Article;
Monetary-Policy has no impact on food-prices-P Chidambaram.
Comment;
Monetary-Policy affects food prices through loose money
supply, and increase in employment, wages and income... if it had not then why
we are expecting more rate hikes... Does it mean that our RBI Governor is doing
a mindless job..? No because he is trying to control demand through interest
rates hikes, both the govt. and RBI can affect demand... The govt. through
loose fiscal policy in programmes like MNREGA… it is pumping wages and
income... Rural areas got a boost in the same terms (wages and income) and
demand is built… It is true that food inflation is not always completely a
result of demand side forces and sometimes supply side factors are too
responsible… But monetary policy can help controlling prices by controlling
demand if supply side measures can not be improved in the short-run as in case
of vegetables, it takes time… But inflation in cereals like rice and wheat, of
which we have enough stock with the government, is not helping us in bringing
inflation down… Therefore when we are done with the supply-side issues to
control prices in the short-run we need to manipulate demand a little through
monetary policy…
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