World over, doubts are being raised about the effectiveness and even relevance of the inflation targeting mandate of central banks. Central banks have faced criticism for failing to correctly judge and predict the interest rate-inflation dynamics during the post-Covid period.
Take the Indian case. The Reserve Bank of India (RBI) kept the interest rates quite low during 2020-21 and 2021-22. Inflation had conspicuously started raising its head by the middle of 2021-22, but was considered transitory by the central bank and ignored. Then, all of a sudden, in May 2022, the RBI began one of the steepest interest rate-raising cycles in recent history.
The repo rate was increased from 4 per cent to 6.5 per cent by February 2023, and rates have been kept at this level since then.
For quite some time now, the markets have been speculating about when the RBI would start reducing interest rates. Many experts view the current real interest rates to be high, discouraging new investments and hurting growth. The arguments circulating suggest that the increase in repo rate has achieved its purpose, and it is time for the RBI to announce a road map for rate cuts. Some advocate that the real interest rates shouldn't be more than 1-1.5 per cent, and question whether consumer price index (CPI) is the right inflation index to target.
They argue that the RBI should take the lead in reducing rates without waiting for the US Fed to do so. On the contrary, there are others who support keeping the rates high to bring the CPI below 4 per cent. Some have even raised the basic doubt of whether the central bank can actually credibly control inflation.
This column examines the need for tweaking the present inflation-targeting mechanism in India, an ILLUSTRATION: BINAY SINHA Go issue that should be prioritised by the new government formed in June.
Denne historien er fra May 21, 2024-utgaven av Business Standard.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
Allerede abonnent ? Logg på
Denne historien er fra May 21, 2024-utgaven av Business Standard.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
Allerede abonnent? Logg på
A life that lives beyond
The passing of Ratan Tata marks the loss of not only an iconic leader but also a global visionary whose influence extended far beyond business.
Ratan Tata: The unlikely social media star
On Monday, Ratan Tata posted on social media: \"Thank you for thinking of me,\" debunking rumours about his health. Just two days later, on Wednesday, the former Tata Group chairman passed away in a Mumbai hospital at the age of 86.
Paytm appears poised for rebound
While Paytm (One97 Communications) is not completely past regulatory hurdles, its share price has gained in the last month or two. The Paytm handle migration is complete along with FDI clearance necessary for the Payment Aggregator (PA) license.
Love-all, RAFA
'KING OF CLAY' TO SIGN OFF FROM PROFESSIONAL TENNIS BY THE END OF THIS SEASON
Aman for startups
Ratan Tata was known as much for his business acumen as for his philanthropy. However, a lesser-known fact was his stellar track record when it came to startup investment.
RBI's inflation caution may halt FMCG rally
Analysts suggest buying quality stocks on dips for long term
Indices close marginally higher
Equity benchmark indices Sensex and Nifty settled higher on Thursday due to gains in banking, power, and industrial stocks amid a firm trend in global markets.
Oil gains after 2-day decline
Oil rose after a two-day decline as traders watched for an Israeli response to Iran's missile attack early last week, while US crude stockpiles expanded the most since April.
Pro-rata distribution mandate for AIFs likely to see tweaks
Final norms to ensure excuse, exclude provisions co-exist
Bernstein downgrades Indian stocks on valuation concerns
Bernstein Societe Generale Group's Asia quant strategists have downgraded Indian stocks due to valuations, while predicting further upside for Chinese equities on a policy boost.