Indian government policy on Inflation?

Question

I dont think govt policy on inflation is correct. My logic goes as below

If the interest rates & CRR rates are increased. People will not get more loans, which will reduce the industrial output. Since the sales is lesser, people will not be getting much income. So the distribution of money will be lesser in people hands(Especially poor people hands). Buying capacity will be lesser.

Price of goods are increasing everyday due to inflation.

So because of increasing interest rates, poor people will not have more money and price of goods are going higher. What they will do to feed their family to pay rent.

I dont think it is a good monetary policy by RBI.

Do you agree with me?

Answer 1

yes you are right.the main thing of growth is in market money has to flow continously.if money is flowing then there is no problem.

Answer 2

In effect yes; if you read between the lines of the RBI policy, it is clear that they are looking at a slower rate and to bring inflation to 7% by March 07. If you ask me they might be abele to bring it those levels before March since crude prices are going south.

Inflation is not about buying capability; it is about the increase in expense of the consumer or in other words, price rise. To reduce this, either demand can be lowered or supply lowered. Since RBI cannot do much on supply, they tend to lower demand by making it more difficult for individuals and banks to borrow, thereby lowering the liquiidity.