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Monetary Policy Case Study
Is Monetary Tightening India’s Best Response to the Ongoing Inflation
Publication Year : 2010
Authors: R Datta, S Datta, S Chaudhuri and S Chaganty
Industry: General Business
Case Code: MOP0022IRC
Teaching Note: Not Available
Structured Assignment: Not Available
The inflation rate in India jumped to 11.98% for the week ending 19 July 2008. In order to arrest inflation levels, the Reserve Bank of India, the country's central bank, increased the key short-term lending rate (repo rate) by 50 basis points to 9%. The cash reserve ratio was also raised to 9%. The bank rate and the reverse repo rate were however kept constant at 6%. The economists did not rule out further monetary tightening measures. However, many economists felt that since inflation was a cost push one, monetary tightening measures taken to curb demand, might give some respite in the short run, but these measures would not be very effective in the long run.
- To understand the concepts of inflation particularly demand pull and cost push inflation.
- To understand the inflationary scenario in India.
- To understand the policies adopted by government and RBI to bring down inflation levels.
- To understand the effectiveness of these policies.
Keywords : Inflation, Monetary tightening policies, Devaluation of currency, Imported inflation, BOP (balance of payments) crisis, Primary commodity prices, Structural reforms, Import compression, Case reserve ratio, Repo rate, Production capacity, Impact
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