Reasons for current inflationary situation in

India & measures by RBI

- DEBANSHU GHOSH

13DM013- PRITAM SAHOO

13DM050

CAUSES OF INFLATION

A. Factors causing increase in demand for goods & services : • Increase in money supply• Increase in governmental & private expenditure• Decrease in tax rates• High growth rate of population

B. Factors causing decrease in supply of goods & services :• Scarcity of factor & non- factor inputs• Strikes & lockouts in business firms• Increase in exports• Illegal activities like black marketing & hoarding

CURRENT INFLATION RATE

In October of 2013, India’s annual headline inflation rose for the fifth straight month to an eight-month high of 7 percent, mainly due to

higher prices of fuel and manufactured goods.

The index for food prices eased to an annual 18.19% slower than the annual rise of 18.4% in September. On a monthly basis, it declined 0.4 percent due to lower prices of ragi and maize (5% each), tea (4%) and poultry chicken, fruits and vegetables and fish-marine (3% each).

Energy costs were up 10.33% year-on-year, slightly up from 10% in the previous month. On a monthly basis, it increased 0.9%.

Prices of manufactured goods accelerated to 2.5%, up from 2% in September. From September to October, it went up 0.4%. Build up inflation rate in the financial year so far was 6% compared to a build up rate of 4.66% in the corresponding period of the previous year.

CURRENT INFLATION RATE IN INDIA

CPI INFLATION INDIA

NOVEMBER 2013 : 11.24%

CHART – CURRENT CPI INFLATION INDIA ( Yearly basis ) – Last 12 Months

The CPI inflation rates in the table are presented both on a monthly basis, compared to the month before, as well as on a yearly basis, compared to the same month last year.

Inflation (monthly basis) inflation Inflation (yearly basis) inflation

october 2013 - september 2013 1.26 %   october 2013 - october 2012 11.06 % 

 september 2013 - august 2013 0.42 %   september 2013 - september 2012

10.70 % 

 august 2013 - july 2013 0.85 %   august 2013 - august 2012 10.75 % 

 july 2013 - june 2013 1.73 %   july 2013 - july 2012 10.85 %  june 2013 - may 2013 1.32 %   june 2013 - june 2012 11.06 %  may 2013 - april 2013 0.88 %   may 2013 - may 2012 10.68 % 

 april 2013 - march 2013 0.89 %   april 2013 - april 2012 10.24 % 

 march 2013 - february 2013 0.45 %   march 2013 - march 2012 11.44 % 

 february 2013 - january 2013 0.90 %   february 2013 - february 2012 12.06 % 

 january 2013 - december 2012 0.91 %   january 2013 - january 2012 11.62 % 

 december 2012 - november 2012

0.46 %   december 2012 - december 2011

11.17 % 

 november 2012 - october 2012 0.46 %   november 2012 - november 2011

9.55 % 

RUPEE SLIDE

HOW IS INFLATION MEASURED?

Inflation is measured by a statistical tool known as index number.

In India, there are 5 major national indices for measuringchanges in the price levels - WPI (1) & CPIs (4)

i. WPI ( Whole Sale Price Index)

ii. CPI (Consumer Price Index)

iii. GDP Deflator

GENERAL MEASURES BY RBIRBI measures inflation by Monetary policy.

‘Monetary Policy’ is implemented through the use of ‘Monetary Instruments’ :-

i. Bank Rate Policy (BRP) ii. Variable Cash Reserve Ratio (CRR)iii. Open Market Operations (OMO)iv. Statutory Liquidity Ratio (SLR)

Policy through which the central govt. & The central bankof the country regulate the money supply in the economywith a view to ‘correct inflationary or deflationarysituation’ in the economy & have monetary stability.

CURRENT MEASURES TAKEN BY RBI

Facing some of the fiercest price pressures in Asia, the RBI lifted its policy repo rate by 25 basis points (bps) to 7.75 percent, in line with expectations in a Reuters poll.

With the rupee having stabilised after a steep May-August slide, the RBI also lowered its Marginal Standing Facility (MSF) rate by a further 25 bps to 8.75 percent, as expected, which eases liquidity in the banking system by lowering the cost of borrowing for lenders.

CURRENT RATES

Bank Rate (BRP) : 8.75% (w.e.f. 29/10/2013) Decreased from 9.00% which was continuing since 07/10/2013

Cash Reserve Ratio (CRR) : 4.00% (w.e.f. 09/02/2013) Announced on 29/01/2013 - Decreased from 4.25% which was

continuing since 30/10/2012

Statutory Liquidity Ratio (SLR) : 23% (w.e.f. 11/08/2012) Announced on 31/07/2012 - Decreased from 24% which was continuing

since 18/12/2010

Repo Rate under LAF : 7.75% (w.e.f. 29/10/2013)

Increased from 7.50% which was continuing since 20/09/2013

Reverse Repo Rate under LAF : 6.75% (w.e.f. 29/10/2013)Increased from 6.50% which was continuing since 20/09/2013

Marginal Standing Facility (MSF) : 8.75% (w.e.f. 29/10/2013) Decreased from 9.00% which was continuing since 07/10/2013

RECENT NEWS ABOUT OMO

RBI has decided to purchase Rs 8000crs government bond to keep the system adequately supplied with liquidity.

To strengthen currency rate.

THANK YOU