By Rakesh Neelakandan
RBI is no fool!
The best brains available in the planet are working relentlessly to protect the economy from crises that are sweeping the globe.
In this context, it would be amateurish on the part of India’s Finance Minister to comment that The Reserve Bank of India's (RBI) monetary tightening is impacting the country's economic growth.
It is! And it is time that some fiscal strategies are employed.
The Reserve Bank of India has hiked key rates by another 25 bp. Subsequently, the short-term lending (repo) rate stands at 8.25% and the short-term borrowing rate (reverse repo) is 7.25%.
There is no inkling of doubt that the move would hurt India growth story further. In fact the growth story is already strained. And according to economists the move may not help curb the inflation.
The rate hikes have not had any impact on Indian commodity markets so far and the prices of commodities continue to go up.
“Inflation staying above 8% rate cannot be accepted. But I think RBI has exhausted all the monetary tools it is having. The rates have been hiked 11 times in 15 months, and still the inflation is ruling high. It is evident that rate hikes alone would not suffice and fiscal measures need to be initiated.” Martin Patrick , a Kochi based economist had commented on Thursday, when the markets were widely expecting a rate hike.
“The government should show strong resolve and should not dilly dally with fiscal policy measures.” he said.
Politics is playing its sweet part in all these developments. The government, battered by scams and Anna Hazare is feverishly trying to gain some ground. In the process, cowardice has taken the driver seat and instead of driving home some bold measures is exhibiting hypocrisy.
It is ironical that the rate hikes are in close heels with petrol price hikes! What the rate hike has done, is being undone by fuel price hikes.
