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Economists state that there is always a tradeoff between growth and inflation. But, how much of inflation can an economy absorb to fuel its growth?
Great Topic :good: But I am very poor in economics..so closely watching this thread for some awesome views on it! Please you shed some light on the subject.
Inflation (upto a certain limit) is important for growth. For eg: England’s economy hasnt been able to grow, as there hasnt been any inlflation(their inflation is in -ve).The RBI which recognises CPI(consumer price inflation) as the most important index thinks that inflation should be kept under control(not more than 5%), since RBI has achieved that target (CPI is 4.38%) there are hints that it may review and change the policy(repo) rate. I think inflation should be kept in check as it affects the day to day life of the common man. Growth can be achieved by other ways as well (removing bottlenecks in government related procedures in setting up businesses , increase FDI in various sectors, etc.). If the RBI reduces policy rate just for the sake of growth without keeping a check on inflation, the consequences can be disastrous for the common man.
Just after getting elected, the Finance Minister started demanding a decrease in interest rate. The recent fall in crude oil prices and slowdown in the manufacturing sector also support this demand. The reduction in rates will help industries to come up with new projects or improvise the existing ones . As a result , jobs will be generated and economy will revive. But RBI Governor doesn’t look interested as he feels , inflation should be tackled first.Once inflation is at a sustainable level, the rates could be reduced. Who do you think is right ?
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