Interest Rate Hike and Inflation Control in India: Problems with RBI's current policy

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RBI has hiked the interest rates yet again. Its policy of trying to control inflation by tightening liquidity is based on underlying assumption that the current inflation is due to liquidity excess in the system. However, price rise can also be a result of demand supply mismatch. Insufficient supply to meet the demand of industrial output and infrastructure, causing distributional inefficiencies,  can also result in inflation. Ironically, the latter cause of inflation has completely opposite solution. That is, if demand supply gap is the culprit, we shall instead need loosening of the liquidity. Clearly, we might be running against time. Thus, RBI needs to furnish more evidences to back its current hypothesis as well as proofs of satisfactory impact  of its current stance.

Now look at the last few months data. There is hardly any impact of interest rate hike on inflation. These economists thinking is so set, they hardly look at the situation objectively.




(I asked ET to publish this as one of its open letters on 17th sep, but i tell you these morons publish same thing when some big shot tells them to. Else, they ignore you carelessly. They hardly go after the idea.)


On 19th September, I read this; Dont ignore Turkey rate cuts from economic times. Didn't I tell this to ET before him? But no one listens to chotu motus like me.


Later again in this article of ET same hypothesis has been expressed. (http://m.economictimes.com/PDAET/articleshow/10072821.cms)



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