Core inflation aims to capture the long-term direction of price changes by excluding temporary fluctuations. This allows policymakers and analysts to focus on the underlying trends in inflation, which are more relevant for economic decisions. The Traditional Approach: Excluding Food and Energy The most common method for calculating core inflation excludes frequently volatile items like … Read more
Inflation, a persistent rise in the price of goods and services, is a complex phenomenon with various contributing factors. This section explores the key drivers of inflation in India, categorized into demand-pull, supply-push, domestic, and external factors. Inflation in India is influenced by various factors that also facilitate comparative policy analysis. The Phillips curve is … Read more
Developing economies face numerous challenges, particularly concerning monetary policy and the phenomena of inflation and price stability. Let’s explores the challenges of managing inflation in developing economies, particularly in the context of India. Here’s a breakdown of the key themes: Monetary Policy and Inflation: Optimal Inflation Rate: Money Supply and Inflation: Global Trade and Inflation … Read more
In developing economies, managing inflation through effective monetary policy poses several challenges. Central banks play a pivotal role in stabilizing prices to foster economic growth and encourage savings. Former Reserve Bank of India Governor, C. Rangarajan, emphasized the trade-offs involved in balancing output and inflation over the long term, highlighting the uncertainty introduced by short-term … Read more
Inflation refers to the gradual increase in the prices of goods and services in an economy over time. It reduces the purchasing power of a currency unit. In simpler terms, as inflation rises, you can buy less with your money. Key Points Consumer Price Index (CPI): Wholesale Price Index (WPI): Key Points:
Monetary policy in developing countries like India encounters challenges and limitations due to several factors: Limited Alternative Investment Options: Dependence of Commercial Banks on Deposits: Limited Financial Inclusion: Impact of Monsoon Uncertainty: Large Informal Sector: The presence of a large informal sector in developing economies can further complicate the effectiveness of monetary policy. Businesses operating … Read more
The Reserve Bank of India (RBI) utilizes several quantitative tools for monetary policy to manage liquidity and influence economic activity. These tools directly affect the money supply and interest rates in the banking system. The quantitative tools are Repo Rate, Reverse Repo Rate, Cash Reserve Ratio (CRR), Open Market Operations (OMO). While quantitative tools directly … Read more
The Marginal Standing Facility (MSF) is a window introduced by the Reserve Bank of India (RBI) in May 2011 to provide short-term liquidity support to scheduled commercial banks in emergency situations. In essence, the MSF acts as a safety net for banks in times of unexpected liquidity shortages. It allows them to borrow short-term funds … Read more
Open Market Operations (OMO) are monetary policy tools used by the Reserve Bank of India (RBI) to regulate the liquidity and money supply in the banking system. It involves the RBI buying and selling government securities in the open market. OMOs can influence interest rates in the economy. By affecting the money supply, OMOs can … Read more
The Cash Reserve Ratio (CRR) is a monetary policy tool used by the Reserve Bank of India (RBI) to regulate the liquidity and solvency of scheduled commercial banks in the country. The Cash Reserve Ratio (CRR) is a mandatory reserve requirement set by the Reserve Bank of India (RBI) for commercial banks in India. It … Read more