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- Atul Gupta
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Saturday, January 8, 2011
Atul Gupta: Currency-&-Inflation @ Economy2010
Atul Gupta: Currency-&-Inflation @ Economy2010: "The Year 2010 is behind us and hence ideal time to see major activities in our(India) economic system that will define the year ahead for us..."
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Currency and Iflation are inter related. If Government prints more currency, its value decreases and inflation rises. I want to know how does Government decides - how much currency to be printed.
ReplyDeleteHow much currency to be printed depends on the money supply in economic system. RBI which is the Central Bank of India has the sole power to issue currency and through its monetary policy regulates the money supply. Repo Rate, Reverse Repo Rate, Cash Reserve Ratio are tools to tune the money supply in the system and can be controlled efficiently.
ReplyDeleteHigh liquidity may leads to high inflation and hence negative impact on currency market. So to control excess liquidity in economic system, RBI increases Repo Rate (rate at which our banks borrow rupees from RBI) which makes credit costly and increases the CRR (amount of funds that the banks have to keep with RBI) to drain out the excessive money from the banks. This kind of measures by RBI can only control the inflation to a certain extent only.