Dollars and Jens
Tuesday, July 27, 2010
Monetary Policy and Inflation in India
The Reserve Bank of India (RBI) on Tuesday... raised the repo rate—at which it lends to commercial banks—by 25 basis points (bps) to 5.75%. The reverse repo rate—or the rate at which banks park excess cash with RBI—has been raised by 50 bps to 4.50%.If "inflation continues to be [your] main concern", I would think you shouldn't be targeting negative real interest rates.
...Inflation continues to be the main concern for the central bank. In fact, it has raised the inflation projection for March 2011 to 6% from 5.5%.
Incidentally, last summer (when I was in India) the monsoon largely failed, causing severe shortages of domestically produced food. I have seen elsewhere that the government is hoping that food prices will come down for their own reasons after this year's harvest. That should be baked into an "inflation projection for March 2011", though.