Inflation is on the account of

flawed monetary policy.

Presented by:
•

• Shahrukh Khan
• Iqbal ahmed ansari
• Md. Saleem khan
• Indrajeet jha
• Shankey Garg
Tuesday, December 7, 2021 National Economic Planning 08-10 • Gagandeep singh 1
 Inflation

Situation in which there is…

• Excess of demand over supply.
• Rise in prices of goods.

Measuring Inflation
(P1 – Po)/ Po x 100
Tuesday, December 7, 2021 National Economic Planning 08-10 2
 Monetary Policy
Vs
Inflation
Monetary Policy is concerned with
 Managing the growth,
 Stability for the national currency
 Ensure adequate flow of credit to
the productive sectors of the
economy.
 Expansionary & Contractionary
policy. National Economic Planning 08-10 3
Tuesday, December 7, 2021
 Tight Monetary Policy

• Heavy debt on banks and companies.

• Fall in share price and real estate led to
financial crisis.
• High interest rate causes
liquidity squeeze.
• Rising import price cause
inflation.
Tuesday, December 7, 2021 National Economic Planning 08-10 4
 Short term borrowing
• Short term borrowing are volatile and causes recession &
bankruptcy.

• Speculative flow of money can be controlled by raising interest

rates and making credit difficult for pvt. Sector.

• Controlled through restriction if short term money from abroad

& entry of foreign financial institution in domestic market.

• Reserve bank should reduce interest rates and make more

credit available for productive investment through credit
control.
Tuesday, December 7, 2021 National Economic Planning 08-10 5
 India’s month-to-month
Inflation

Tuesday, December 7, 2021 National Economic Planning 08-10 6

 Current Inflation rate in
India & other countries
Inflation
Countries Rate
INDIA 8.98
US 3.70
CHINA 4.00
JAPAN 2.10
AUSTRALIA 5.00
RUSSIA 14.20
Tuesday, December 7, 2021 National Economic Planning 08-10 7
 Monetary policy challenges
• Challenges with globalisation
• Challenges for emerging market economies

Tuesday, December 7, 2021 National Economic Planning 08-10 8

 Monetary & Liquidity
Conditions
Basis 2007 2008

Broad Money 21.5% 20.7%

Aggregate Deposits 22.3% 21.2%

Bank Credit 28.5% 22.3%

Reserve Money 23.7% 30.9%

Tuesday, December 7, 2021 National Economic Planning 08-10 9

 Arguments about inflation
• Objective is to achieve an average rate of
CPI inflation of between 2 and 3 per cent
• Argument “ inflation is higher”
• Wages have not picked up
• Certainly not the labour costs

Tuesday, December 7, 2021 National Economic Planning 08-10 10

 Inflation, and India status
position in world economy

• Inflation is an excess in the

money supply..
• Price deflation and not
inflation.
• Rise in general price level is
reported in rates of
change..

Tuesday, December 7, 2021 National Economic Planning 08-10 11

 Arguments about
monetary policy
• Ineffective in controlling
prices, because it is failing
to restrain demand.
• Not that monetary policy is
ineffective, but in fact that it
makes the problem worse
by actually raising prices.
• Not that monetary policy is
ineffective, but that it is not
terribly precise.

Tuesday, December 7, 2021 National Economic Planning 08-10 12

MONETARY POLICY AFFECTS
DOMESTIC INDUSTRY
PARTICULARY EXPORTERS!
• Central bank announces on
export refinance.
• Rate at which RBI will lend
to banks.
• Lowering of rates
 INFLATION AND THE
INEFFECTIVENESS OF MONETARY
POLICY

• Money policy with low

interest rates can boost
economic growth.
• Any attempt to boost
growth through
reducing rates is
therefore counter
productive.
 Boom

Rec
y

es
rit

sion
spa
Pro

Depression
Depression

BUSINESS CYCLE

Tuesday, December 7, 2021 National Economic Planning 08-10 15

 Causes of Inflation
in India
• Rise in Crude-Oil price
• Black money
• GDP
• Wage rate rise
• Smuggling
• Sub-Prime crisis
• Low per-capita
• Poverty
Tuesday, December 7, 2021 National Economic Planning 08-10 16
 Control
Y=C+I+G+NX

Int MS GDP Controlled

Inflation

Short -Term
Long -Term Measure
Measure
• Economic development
• CRR
from deficit financing
• SLR
• Repo

Tuesday, December 7, 2021 National Economic Planning 08-10 17

 Objectives of Monetary
Policy
• To maintain price stability
• Managing the growth,
• Stability for the national
currency
• Ensure adequate flow of
credit to the productive
sectors of the economy.
Tuesday, December 7, 2021 National Economic Planning 08-10 18
 Monetary Policy & Risks

• Inflation target of the Central Bank is set as

4%.
• Current level of the credit interest rates.
• Global inflation risk appetite.
• High increases in wages augments the risks
regarding services prices.
• Government interventions.
Tuesday, December 7, 2021 National Economic Planning 08-10 19
 Conclusion
• Inflation refers to situation
of having to pay too much
for too few things.
• Reason – Liquidity
(decrease in value of
money)
- Short supply leading to
higher demand
- Price rise
• Rise in WPI

Tuesday, December 7, 2021 National Economic Planning 08-10 20

 Contd.

• Crude oil prices (75% increase)

• The wholesale price based inflation rate
touched 13 year high during mid-2008.
• Nov.1990 - July 1992 (16.3%).
• Lowest - Feb.2003 (1.4%)
• India is in a running inflation.

Tuesday, December 7, 2021 National Economic Planning 08-10 21

 Contd.

Ways to measure the effects of inflation: -

1. Change in the real value like wages, salaries,

rent, interests, dividends, profits etc.
2.Distribution of income over time as a result
of inflation.

Tuesday, December 7, 2021 National Economic Planning 08-10 22

 Contd…

• RBI should use planned Monetary policy to

achieve a judicious balance growth of
production.
• Control of the general price level.
• RBI should use long-term measures.

Tuesday, December 7, 2021 National Economic Planning 08-10 23

THANK YOU