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Monday, August 12, 2013

RBI not in favor of high inflation to propel growth

The Reserve Bank of India (RBI) categorically stated Thursday that it is not in favor of allowing high inflation in order to promote growth in the country. The central bank asserted that a policy of tolerating inflation will not yield the desired results. “While lower real interest rates can stimulate growth and investment, the central bank cannot adopt a policy of higher inflation tolerance as the means to lower real rates because beyond a threshold, the negative impact of inflation on growth outweighs its positive impact,” the RBI said in an issued statement. Inflation Dampens Consumption Demand The central bank of India cited a recent study to justify its stance. The said study has been conducted in the wake of increasing criticism that the bank is following an anti-inflationary monetary policy which in turn is hindering growth. As a policy matter, the RBI the RBI has attempted to rein in inflation since July 2011. The bank has kept the repo rate above 8 per cent for 18 months

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