Fiscal Consolidation Coupled With Good Budget Will Arrest Rising Inflation

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Good budget will arrest rising inflation

 

  • RBI Governor Raghuram Rajan said decline in interest rates are possible if disinflation happens at a faster than predicted rate. This can be achieved through :

    • A good budget
    • Focusing on fiscal consolidation by reducing subsidies and boosting investments.
    • Action on agriculture support prices
  • Primary aim is to reduce exchange rate volatility, and keep monetary policy from reacting to every piece of incoming data. This will allow for substantial amount of room to build up before the interim CPI (Customer Price Index) target is reached.
  • The RBI-appointed Urjit Patel panel has set a CPI target of 8% by 2015 and 6% by 2016.
  • RBI is willing to look through transient changes in CPI and is open to buying market greenbacks and conducting open market operations.

Exams Perspective:

  1. RBI
  2. Urjit Patel Panel Recommendations
  3. Exchange rate volatility
  4. Disinflation
  5. Fiscal consolidation
  6. CPI

 

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