Overcoming the paucity of tools with RBI

The proposed policy regime may seem a bit strange to some readers

On May 4, the Reserve Bank of India (RBI) raised the repo rate by 0.4 per cent. The main reason was to deal with the consumer price inflation rate, which has now surged to a high of 7.8 per cent. Though the announcement was welcomed from the viewpoint of price stability, there are concerns regarding output and employment in India. Actually a similar story of a trade-off faced by the interest rate policy is playing out in the rest of the world as well. 

It is often argued that we have to live with such a policy as there is no