Inflation and RBI’s role

This refers to the edit “No pain, no gain” (July 27). Your call for the central bank and the government to put their heads together to contain inflation is timely. The Reserve Bank of India (RBI) has been very active in changing monetary policy, but the government’s dormant role is quite regrettable. RBI has, for the first time, warned the central government about the absence of complementary measures — supplyside management and corrective fiscal policy. Considering that the monetary authority was forced to revise its inflation target to seven per cent (from six per cent announced in May) by March 2012, the central bank should persuade the government to revisit the issue of its responsibility to contain inflation. There is no point in continuing to use monetary tools to curb a trend that has more to do with fiscal and supply issues.

KV Rao, Bangalore (BS)

The Reserve Bank of India (RBI) seems bent on a single-point formula to beat inflation — which is to increase lending rates. For the past several months, RBI has been increasing the lending rates and this has had no effect on inflation. The manufacturing sector, which borrows from the market, is increasing prices to cover the financial cost. And traders will do the same thing leading to a vicious cycle that will ultimately affect the common man. RBI and the government seem to have run out of ideas. Can eminent economists in India suggest some useful and effective ideas?

V.Vedagiri, Chennai (BS)