The RBI, in its Financial Stability Report released recently on the health of the financial sector, has expressed concern over the consistent price rise and runaway inflation, which is estimated at around 9 per cent. It has also raised concerns over the rising bad loans in certain sectors, the possibility of European debt crisis spreading to advanced economies, fiscal consolidation, and so on. Inflation has remained above RBI's comfort level for the past one year. In its effort to tackle inflation, the RBI has raised key policy rates by as many as 10 times since March 2010. Yet, inflation is relentless and has assumed a menacing proportion. High interest rates are not good for the economy since that will translate into increased borrowing costs. Yet, the RBI has decided to hike the key policy rates to contain inflation and sacrifice growth in the medium term. While attacking inflation would remain a priority for the government and the RBI, the extent of economic uncertainty prevailing due to internal and external factors would prompt the RBI to work out permutations and combinations to keep the economy going.
S. Umashankar, Nagpur (Business Line)
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