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In
the last one and a half years it has been observed that
inflation in Consumer Price Indices of both the Agricultural
laborers and Industrial workers has demonstrated an
upward trend due to hardening of retail prices of vegetables
and pulses. To maintain stability in the prices the
Reserve Bank has to create an environment for higher
investment and growth, which can be achieved through
recalibration of the policy variables.
During
the current year, RBI, while keeping the Bank Rate and
the Cash Reserve Ratio (CRR) unchanged at 6.0% and 5.0%
respectively, has raised fixed reverse repo rate under
the Liquidity Adjustment Facility (LAF) thrice, each
time by 25 basis points, to reach a level of 5.50% -
as on January 24, 2006. "With the given spread
of 100 basis points vis-à-vis the reverse repo
rate, the repo rate is pegged at 6.50% since January
24, 2006". RBI's policy response was in line with
the cautious approach in many other countries of moving
policy interest rates in a measured way in the face
of the threat of inflationary expectations firming up
with high crude oil prices".
In
the context of a momentous increase in volatility of
the exchange rate, a surge in inflation rate for most
part of the year, and a slowdown in industrial growth
due to socio-political and economic factors in the year
1998-99, the Central Bank had to rethink about the tools
for controlling the overall economy. Prior to the year
1998-99, the policies were directed much towards the
control of a single indicator - inflation. In the later
stage, however, RBI has extended its role towards other
macroeconomic variables leading to a better control
through its policies. |
