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Controlling Inflation In India

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Controlling Inflation In India

  1. 1. Inflation is the rate at Inflation, averagewhich the general level Year Percent Changeof prices for finished consumer pricesgoods and servicesrises over a given 2000 4.009 -14.15%period of time. 2001 3.779 -5.74%Current Inflation Rate 2002 4.297 13.71%is 8.62% as on July2011 2003 3.806 -11.43% 2004 3.767 -1.02% 2005 4.246 12.72% 2006 6.177 45.48% 2007 6.372 3.16% 2008 8.349 31.03% 2009 10.882 30.34% 2010 13.187 21.18% http://www.indexmundi.com/india/inflation_rate_(consumer_prices).ht
  2. 2. Inflation, average consumer prices141210 8 Inflation, average consumer prices 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 http://www.indexmundi.com/india/inflation_rate_(consumer_prices).ht
  3. 3. • Rise in prices of Food items & cereals Agriculture • (Due to monsoon effects, Supply declined; Prices Shot up) • Rising Global crude oil prices (India’ dependence of 75% on crude oil imports since 2009) Policy • Banking & Financing Sectors are not structured esp in Rural Areas. • Slowdown in Productivity & Rising Incomes Supply contributing to high pricing of items for common populationhttp://petroleum.nic.in/petstat.pdf, Ministry of Petroleum & NaturalGas, GOI
  4. 4. Monetary policy contraction Increasing rates relevant to bank lending and commercial rates to discourage borrowing  Repo rate: Short term rates against securities  Reverse repo rate: Reverse lending rates  Bank rates: Long term lending rates Reducing liquidity • Cash reserve ratios (CRR) • Statutory Liquidity Ratios (SLR) • Marginal Standing Facility (MSF)
  5. 5. 2008 2009 2010 2011Inflation 8.30% 10.90% 13.18% 8.95%Bank Rate 6% 6% 6% 6% 5.5% to 9% to 6.5% 5% to 6.25% 6.5% to 8%Repo Rate 4.75%Reverse 3.5% to 5% 4% to 3.25% 7%Repo Rate 3.75%CashReserve 5.5% to 9% 5% 5.50% 6%Ratio (CRR)StatutoryLiquidity 24% 25% 24% 24%Ratio (SLR) Referencing Required
  6. 6. Working of RBI’s PolicyIdeal ConsumptionSituation Increase in Decreases Interest Rate Investment Aggregate Inflation Decreases GDP demand rateMoney Supply Decreases Decreases Decreases Export Decreases Increase in Currency Rate Import Increases Disparity in Purchasing, Actual Supply Shocks, Agri Situation Consumption cultural Increases Shocks Increase in Interest Rate Investment Aggregate Decreases GDP Money Supply demand Inflation Increases Export Increases Decreases Increase in Currency Rate Import Increases Rise in Global Crude Oil Prices
  7. 7.  Fiscal Policies in tandem with Monetary Policies Supply Side Constraints Agriculture Sector Infrastructure Development of SME Sectors Relative downward inflexibility in the commercial interest rate structure
  8. 8. Thank You

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