How RBI tackled Inflated indian economy in 2008
You may remember that the main culprits of inflation last year were: 1. Higher crude prices – Due to rapid growth of global economy in 2007 and early 2008 there was a huge demand for crude. Also, when stock market started showing weaknesses across the globe, investors started parking their money in commodities such as Crude. 2. Supply constraint – Unprecedented drought in Australia and some part of Americas caused shortage of food grains in the global market. India too had a very bad production year and we had to import grains from the global market. This led to increase in general increase in food grains prices. 3. Excess liquidity – High growth in emerging economies like India attracted huge amount of foreign capital. A situation like too much money chasing too few goods lead to inflation. This exactly what happenedin India. Why does rise in crude price lead to inflation? Let us begin with a brief discussion on crude prices. It is an ...