Whether the RBI's policy of hiking interest rates will kill the current growth boom is perhaps the most asked question nowadays. The IMF's resident representative Joshua Felman appears to think not, though a recent presentation makes it clear 'the views expressed ... are personal and not necessarily endorsed or shared by the IMF, its Executive Board, or its management'. Felman points out that it is productivity that is driving investments which have now become as important a driver of growth as consumption was in the past. Second, despite the hike in interest rates, they are still much lower than they were in the mid-90s. Given this, and the fact that current output growth is above trend, Felman argues the RBI's case for tightening is a sound one. Unlike a host of others, Felman argues the current inflation is more driven by manufactured products and not food, once again showing the RBI's actions are the correct ones.
