×

UPSC Courses

DNA banner

DAILY NEWS ANALYSIS

  • 15 October, 2020

  • 5 Min Read

The RBI tunes in to the economy

The RBI tunes in to the economy

Context:

  • The article analyzes how the COVID-19-triggered recession had led to some of the strongly held economic assumptions being revised around the world.

US Federal Reserve:

  • The chairman of the Federal Reserve (Fed) of the US, has declared that the Fed will not let inflation stand in the way of maximising employment implying that it will no longer raise rates pre-emptively(in anticipation of inflation).
  • The reasoning seems to be that the Phillips Curve (the relationship between inflation and unemployment) may no longer hold in the U.S. economy. The Phillips Curve principle has had wide acceptance in Anglo-American economics.

Philips curve:

  • The Phillips curve suggests there is an inverse relationship between inflation and unemployment.

Reserve Bank of India:

  • The latest monetary policy review by the newly reconstituted Monetary Policy Committee seems to be indicative of signs of the RBI shifting away from its rigid inflation targeting policy.
  • Available data shows that the model that currently guides India’s inflation control strategy may be quite irrelevant as seen in the recent behaviour of inflation in India.
  • Despite the staggering decline in output by 23% in the first quarter of this year, the inflation rate did not decrease in India.
  • This observation goes against the argument that inflation reflects an ‘over heating’ economy, one growing too fast in relation to its potential.
  • This conception of inflation represents the RBI’s official understanding of inflation, and presumably forms the basis of its policy of inflation targeting.
  • Also going by the Phillips Curve, inflation should have abated as India’s economy contracted during the lockdown.

Models for inflation forecasting:

  • A recent working paper of the RBI’s research department proposes a model that accepts a role for food prices.
  • Newer evidence has noted food prices as an important determinant of inflation along with imported inflation. Hence a macroeconomic contraction need not lower inflation.
  • This could lead to better forecasting of inflation in India as this is more in tune with the Indian scenario, as against the western economic models which do not attach much weightage for food prices in their inflation monitoring.

Way forward:

  • RBI has been evolving itself to better align its policies more in line with the Indian economy is a welcome and much-needed move.

Source: TH


Anti-Defection Law in India

The Supreme Court of India recently gave a final three-week deadline to the Telangana Assembly Speaker to decide pending disqualification petitions against defecting MLAs under the Anti-Defection Law. What is the Anti-Defection Law? The Anti-Defection Law was introduced through the 52nd Amendment (1985), which added the Tenth Schedule to the

Rat-Hole Mining

A major disaster unfolded in East Jaintia Hills, Meghalaya, when at least 18 workers died following an explosion in an illegally operating rat-hole coal mine. This incident highlights the continued prevalence of rat-hole mining despite bans imposed by the National Green Tribunal (NGT) and the Supreme Court of India. Rat-hole mining is driven

India’s Aviation Sector

India’s aviation sector has grown rapidly, becoming a major economic success story. However, regulatory oversight has not evolved at the same pace. Data-driven monitoring of fares and market behavior is essential to ensure fair competition, prevent market abuse, and shift from reactive crisis management to proactive regulation. Challen

Federalism in India

Recently, a high-level committee on Union–State relations submitted its first report to the Government of Tamil Nadu. The report examines the distribution of powers and responsibilities between the Union and the States, highlighting ongoing debates regarding the balance between central authority and state autonomy. This discussion is clos

India–UAE Economic Partnership

The relationship between India and the United Arab Emirates has evolved from a traditional energy-based partnership into a comprehensive economic and strategic relationship. Over the years, strong political trust, growing trade, and expanding investments have transformed bilateral ties into a diversified economic corridor. The economic partnership

DNA

22 Mar,2026

Toppers

Search By Date

Newsletter Subscription
SMS Alerts

Important Links

UPSC GS Mains Crash Course - RAW