If inflation is supply side why the Reserve Bank is not Cutting interest rates?



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 ?

If inflation is supply side why the Reserve Bank is not Cutting interest rates?
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5 Replies to “If inflation is supply side why the Reserve Bank is not Cutting interest rates?”

  1. I think it probably the deliberately conspiracy of the bankers and policy makers by paying less or 0 interest in most Hong Kong banks. On the other hand, Hong Kong bankers are kept on perverting those old aged depositors to invest in bonds and funds by promoting higher returns. The notoriously known sub prime loan collapse stripped out a total of US $17 trillion dollars from the global investors.
    http://search.yahoo.com/search?p=Articles%20described%20amount%20the%20cut%20interest%20rates%20of%20banks%20is%20to%20attract%20more%20depositors%20to%20invest%20in%20the%20financial%20markets
    http://search.yahoo.com/search?p=60%20Minutes%20showed%20that%20the%20scandle%20of%20the%20sub%20prime%20loan%20collapse%20stripped%20a%20total%20of%20$17%20trillion%20US%20dollars%20of%20the%20global%20investors
    Those Wall St. financial elites (licensed international cheaters and money grippers) did take billions of dollars as sort of compensation and bonus from all investors then collapsed the investment with guaranteed high returns. Now, you must know the name of the game.


  2. Nonsensical conspiracy theories about the international financial elite aside, the reason is this:

    The RBI is saying Indian inflation is caused by supply shocks, I don’t know what precisely, but think things like droughts ruining crops, higher input prices (oil, cotton etc) that sort of thing. Because the inflation is caused by a reduction in supply rather than excess demand, fiddling with interest rates makes no difference particularly. When the supply shock has passed, inflation conditions will return to their underlying norm.



  3. May be RBI does not want to accentuate the already existing Inflation. Suppose, the RBI reduces the interest rates, it may lead to increase in borrowings and resultantly Increase in demand for goods and services. That will be then a situation of Demand Pull Inflation. Thus, in the light of already existing Cost Push Inflation, the RBI does not want to create a situation of Demand Pull Inflation.


  4. RBI is one of the factors on the supply side’
    If the interest rates are lowered then people can borrow for non productive purposes like buying cars etc which leads to rise in prices because scarce resources can be utilized to produce the luxury goods
    Lowering the interest rates may encourage for speculative trading in food materials and for stocking the essentialitems for black marleting which leads to rise in the prices esp food articles which increase the already raising prices
    It also encourages purchasing unnecessary consumer goods





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