The next three months are gonna be costly

So, the RBI has one (important) job: to keep prices from rising too much, too fast. But if you look at the inflation data for the last few months, it doesn’t seem like RBI is managing much. And it’s gonna get worse in the next three months.

But Governor Shaktikanta Das doesn’t seem very worried about it. Aside from keeping interest rates unchanged at a low 4% ⁠— now for two years in a row ⁠— he just told people to ‘keep calm’.

What can the RBI do?

The Arabs setting the price of crude oil will not listen to India’s central bank governor.

However, India imports most of the crude oil it needs and, therefore, they are paid for in dollars. So, if the Reserve Bank of India (RBI) can reduce the $-₹ exchange rate ⁠— for example, by selling some of the dollars it has in its reserves ⁠— it can bring down the cost of the imports and thereby reduce the price of fuel at the pumps.

Similarly, for many other products, the RBI can play a role in bringing the price up or down by managing the money supply and interest rates.

Inflation occurs when too much money is chasing fewer goods and services. If the RBI increases interest rates, then, in theory, the cost of home loans and auto loans may increase. This may deter some of the buyers from making the purchase.

Honestly, there are other factors that decide whether someone wants to buy a new home ⁠— like if they feel like their job is safe or not ⁠— but managing money supply is something RBI can tinker with and it does play a big role.

Anyway, if enough people decide to delay the purchase, the cost of homes may come down, and that may bring down the price of cement, bricks, paints, and so on.

But before the RBI does anything, people may like to know if the peeps there agree that price rise is a problem.

Two deputy governors, aside from Das himself, were faced with this question in three different ways. The answers can be summarised as follows: not so much, maybe, meh!

Between April and August, food, housing and health costs were primary culprits in pushing inflation up. Out of every ₹10 rise in prices in those five months, nearly ₹5 came from these segments like meat and fish, edible oils, housing and clothing etc. and nearly ₹3 came from fuel prices and related rise in cost of transport.

So why is RBI not as worried as we are? Here’s the answer.