..........Let’s start with inflation. As Rajan said yesterday “the RBI takes its mandate from the RBI Act of 1934, which says the Reserve Bank for India was constituted “to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.” Hence, the primary role of the RBI is to ensure monetary stability. Or as Rajan put it “That is, to sustain confidence in the value of the country’s money. Ultimately, this means low and stable expectations of inflation, whether that inflation stems from domestic sources or from changes in the value of the currency, from supply constraints or demand pressures.” There isn’t much that the RBI can do to control inflation..................
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