Rate hikes can tame inflation rise

Mumbai: By front-loading rate hikes, the RBI can cement the credibility of its monetary policy intent and action when it fights supply-side driven inflation on one hand and also contains the negative impact on growth, as per an article.

The paper has been authored by three RBI analysts, including Deputy Governor Michael Debabrata Patra, who is a member of the rating setting panel Monetary Policy Committee (MPC) and also heads the key monetary policy department at the central bank. The article has been published in the monthly RBI bulletin for July, but doesn't officially represent the views of the monetary authority. Underlining that the current inflation pain is global and supply-side driven and can better tackled by fiscal measures and not monetary policy actions like rate hikes, the article notes that the ongoing supply shocks are larger and unrelenting, carrying the risk of unanchoring inflation expectations.

Talking about US Fed, it said that the impact of US Federal Reserve's announcement in November last year to taper its asset purchases was 'moderate' on Indian financial markets largely due to the country's strong external position in 2021, says an article.

The article published in the Reserve Bank of India's (RBI) monthly bulletin for July compared the impact of the two taper announcements (May 22, 2013 and November 3, 2021) by the US Federal Reserve (Fed) on Indian financial markets. The article - Fed Taper and Indian Financial Markets: This Time is Different - is prepared by Vidya Kamate and Saurabh Ghosh from Strategic Research Unit, Department of Economic and Policy Research, RBI.

The share of inward remittances from Gulf nations dipped sharply during 2020-21 on account of the economic stress created by the Covid-19 pandemic, said the RBI article.