The RBI’s monetary policy committee, chaired by its governor, will have to write a letter to the government of India explaining why they were unable to keep inflation under control and recommending some measures to do so (according to RBI act 1935).Sure, inflation is rising, but is this due to the RBI’s low interest rate hikes or something beyond our control, such as the Ukraine invasion or a covid epidemic? Some people blame the RBI for not raising interest rates to combat rising inflation. Is this true?
Well, I personally do not believe that raising interest rates would not lead us to this situation. Let me explain why. To support my opinion, I will use data from the world economic form and compare the policy rates and inflation rates of the United States, the United Kingdom, and the European Union. We all know that India performs far better than the European Union, the United Kingdom, and the United States.As a result, the United States raises its policy rate from 0.25% in January 2022 to 1.75% in June 2022, while inflation climbs from 7.5% in January 2022 to 8.60% in June 2022. (June 2022). In the United Kingdom, policy rates have risen from 0.25% to 1.25% (Jan and June), while inflation has risen from 5.50% (Jan 2022) to 9.10%. (june 2022).Although the European Union has not raised its policy rates (as of June 2022), inflation has risen from 5.10% to 8.10%. Because these three unions or countries have the largest economies, we can conclude that even if the UK and US have increased their policy rates, they still cannot handle inflation, whereas the European Union has not increased policy rates at all and their inflation rate has still increased, and India’s inflation rate as of June 2022 was 7.01%.The RBI Governor was correct in a recent interview when he stated, We stopped a ‘total collapse of the economy’ by keeping rates lower and avoiding premature tightening.Certainly, it is due to external forces that inflation is rising, and this is a highly critical issue that must be handled with extreme caution.Comment down your thoughts on this below.
