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Repo Rate, Inflation and Growth: The Way Forward

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The Indian Journal of Economics and Development
Volume 15 No. 2, 2019, 327-330
DOI: 10.5958/2322-0430.2019.00042.8
Indexed in Clarivate Analytics (ESCI)

Satya Narayan Misra
Dean, Kalinga Institute of Industrial Technology, Deemed to be University, Campus-7, Patia, Bhubaneswar-751024
*Corresponding author’s email: misra.sn54@gmail.com

ABSTRACT
Inflation targeting was synonymous with repo rate determinations, till Alan Greenspan tried to co-opt growth with credit control as the dual objective of Federal Reserve Bank’s Policy in the USA. India has also pursued this track approach till 2016 when the RBI Act was amended to bring in both inflation control and growth as conjoint objectives.AMonetary Policy Committee (MPC) has also been put in place with representation from think tanks in statistics, economics and finance to provide a more realistic architecture to repo rate determination. This paper tries to analyse the relationship between three variables viz. repo rate, gross domestic product (GDP) and growth andinflation.It applies the Taylor Rule to repo rate determination. The paper brings out some of the disquieting trends in repo rate revision, which does not jell with the notion of a glide path of 4±2 per cent in inflation. By insisting on mediumterm 4per cent inflation as a non-negotiable target, credit growth is likely to be affected further; along with a high level of NonPerforming Asset (NPA). It suggestedadopting a more reasonable repo rate, based on the Taylor Rule, factors both the potential and actual growth and inflation trends.The monetary policy must help in the acceleration of growth and investment in India.
Keywords
GDP, MPC, NPA, Repo rate, Taylor rule.

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