The editorial “Time to press pause”(October 28) has over-emphasised the role of monetary policy over supply side management in controlling inflation.
The Reserve Bank of India (RBI) has been changing its monetary stance quite often in keeping with monetary trends that have an impact on inflation. In fact, everybody (read people who matter) thinks that inflation targeting is purely a monetary phenomenon so the ball is in the RBI’s court. However, it is not and need not be so. The reference to rupee appreciation and its impact on inflation in your editorial need further clarification. The rupee appreciation can have a beneficial impact on inflation. Given that edible oil and oil account for major items in our import basket, the rupee appreciation can reduce the inflation rate.
It is also true that the RBI has not resorted to other credit controls. The RBI has in its basket a very powerful instrument, SCC (selective credit control), and one wonders why the RBI has not utilised this weapon to curb inflation. The SCC directives translate into higher margins on loans to essential commodities, higher interest rates and level of credit. In the 1980s and earlier, the RBI used to issue SCC directives to commercial banks at regular intervals to regulate the credit flow to business. In fact, there is a big mystery behind the non-use of this instrument in the recent past and the monetary authority owes us an explanation.
K V Rao, Bangalore
