If inflation is supply side why the Reserve Bank is not Cutting interest rates? please help me with this?



I don’t understand

When Reserve bank of India calls Indian inflation to be supply side then why its not ready to cut interest rates.RBI has often said that it cannot lower the interest rate due to high inflation.

Can some one please explain this ?

One Reply to “If inflation is supply side why the Reserve Bank is not Cutting interest rates? please help me with this?”

  1. What do you exactly mean by inflation on supply side ?

    According to Keynesian economics and established worldwide economic norms, the rate of interest is almost directly proportional to the rate of inflation of that country. Higher the rate of inflation (such as in most developing third world countries), the rate of interest is also highest. Because, in order to curb maximum inflation, the government and the Reserve Bank incline people to save money by offering high saving/interest rate. Besides, the developing countries are always short of cash in their payment account due to budgetary deficits. Whereas, this equation is very opposite in the developed world where the government of those countries is not cash strapped.





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