Inflation Containment - the Role of Rbi and Banking Industry

Topics: Central bank, Fractional-reserve banking, Bank Pages: 1 (348 words) Published: August 28, 2011
Inflation Containment - the role of RBI and Banking Industry

When inflation spikes, the single focus of the government becomes controlling inflation. This is not how mature market economies work. In all mature market economies, the task of controlling inflation - and only the task of controlling inflation - is placed with the central bank. In India, the onus to control the situation of inflation is upon the Reserve Bank of India (RBI) and the banking Industry. Our paper aim is to present the role that the RBI and the banking Industry plays in controlling the Inflation, the measures adopted in overcoming the negative effects of Inflation, the mechanisms and the policies through which the Central Bank seeks to control the amount of credit flowing in the market, whether these mechanisms used by the RBI has passed its prime and thus now the RBI needs to take up a holistic approach to the same. We would then deal very briefly with the suggestions that may shed some light on what could be the possible steps RBI and the banking industry could take to control rising prices. We find that the practice adopted by the Central bank right now seems to be an ostrich approach. We understand it clearly that the reason that we have inflation is because the economic status and mindsets of the people of India are advancing. Indian consumer is no longer afraid to spend tomorrow’s money today. The average Indian consumer has reached a comfortable economic position where he now starts to demand products and services which were earlier not available to him. This is an indicator of an improved standard of living.But this should not be considered as a disadvantage. The problem here is that the country’s infrastructure is not capable of meeting these requirements. But, instead of giving any attention to the supply factors, by simply lowering money and credit in the market, the RBI is artificially pushing demand down. It is stifling the needs and requirements of the consumers and...
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