RBI vs GoI: One wants to curb demand, the other to boost it

This newspaper has been critical of RBI’s policy of raising interest rates, especially the sharp hike of July 15, since inflation has been falling anyway and there is no evidence that the July 15 measures helped the rupee stabilise. If the rupee pulled back over the past few weeks, it was because the dollar weakened against most currencies. And while the biggest increase in WPI, and CPI, was due to food prices, there is little interest rate hikes can do to tackle this. Indeed, to the extent supply bottlenecks are exacerbating the crisis, lower interest rates are probably a better solution.

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