How will the rate hike by reserve bank of india affect inflation rate?

Question

How will the rate hike by reserve bank of india affect inflation rate?

Answer 1

Monetary policy in India has been adoped in the past to stop inflation getting out of control. Increasing the interest rates via monetary policy should have the effect of reducing consumer spending therefore contracting the supply of money in the economy.

Answer 2

Higher interest rates control the inflation rates. Consumers will bring more into the economy aswell. The government can use this money to give out unemployment and family benefits. This money can be spent on improving the education system so skilled labour can be produced. More employmwnt opportunities will promote competition which will result in prices coming down. The GDP will increase and India can become a SUPERPOWER! But the Inflation level needs to be controlled. The government can also do other things to control this ...i.e. more taxes.