Rising prices erode the rupee’s value, and data released on Thursday shows that RBI was right to worry about it. Retail inflation, at 6.93% in July, was nearly a whole percentage point above the upper limit of its tolerance band
When the Reserve Bank of India (RBI) refused to drop its policy rate below 4% last week, it surprised many. The central bank had committed itself to doing whatever it took to revive our economy, and cheap credit has been part of the standard toolkit to spur commerce. But easy money makes it harder to maintain price stability, which is a core task of any currency issuer. Rising prices erode the rupee’s value, and data released on Thursday shows that RBI was right to worry about it. Retail inflation, at 6.93% in July, was nearly a whole percentage point above the upper limit of its tolerance band. This is also the 10th successive month that the reading has exceeded its 4% target.
Admittedly, the covid disruption had turned prices unpredictable. It was unclear if a supply squeeze would outweigh a demand slump. Also, inflation can be imported through higher oil bills, a fall in the rupee’s external value or even an effort to stop it from being pushed up by an insurge of money from abroad. Current prices, though, seem to have been led higher by dearer food. If so, then overall inflation may ease once fresh supplies arrive after the kharif harvest.
Click here to read the Mint ePaperLivemint.com is now on Telegram. Join Livemint channel in your Telegram and stay updated
