Chief Economic Advisor (CEA) V Anantha Nageswaran on Friday flagged the growing limitations of conventional monetary policy in tackling inflation, warning that interest rate adjustments may become less effective as global economies face increasingly frequent supply-side disruptions.
CEA’s remarks came at a time when geopolitical tensions, energy price volatility, supply chain bottlenecks and climate-related shocks are adding to inflationary pressures, complicating the task of central banks in maintaining price stability. The comments also highlight the challenges policymakers face in responding to inflation driven by factors beyond domestic demand.
“Fiscal and other public policy measures will be more important because raising interest rates will not solve the supply-induced problems. If anything, it may even be counter-productive,” he said at the 9th Annual Food Systems Dialogue.
Since 2022, very few countries have met
“Since 2022, very few countries have met their inflation target. So, it will be there as a framework, but I think countries will take creative liberties with it, as they have to,” he added.
Amid persistent supply induced issues, countries will have to use all kinds of flexibilities with regards to the inflation targeting framework, he said.
“As countries weaponise supply chains and use natural waterways and other choke points, the ability to solve these problems by simply cutting or raising interest rates will no longer be feasible,” he said.
The Reserve Bank of India’s Monetary Policy Committee
The Reserve Bank of India’s Monetary Policy Committee (MPC) has in October raised the repo rate by 25 basis points (0.25 percentage points) to 5.50%.
Major central banks across the globe, including the US Federal Reserve, have also hiked the interest rates.
CEA further said that in such a scenario, bringing agriculture back is the main driver or engine of economic growth. He further flagged that the emergence of artificial intelligence and immigration restrictions in different countries may slow down job creation in the services sector.
Get Latest News Live on Times Now along
Get Latest News Live on Times Now along with Breaking News and Top Headlines from Business, Economy and around the World.
Vikas Kumar is Deputy Editor (Business) at Times Now driving coverage across policy, economy and markets. He possesses nearly a decade of experience i… View More
