Interest Rate Hikes might kill the sentiments

Inflations means that money is losing its value or it’s purchasing power. So, another approach to counter inflation can be to ensure that there is even more money in people’s hand. Am I over-simplifying things or the idea makes any sense?

?I vaguely remember our experience as an economy in 2013 with high inflation rate, increase of interest rates and consequent impact on rate of growth. With compare and contrast, what can be the best way to deal with such high inflation scenario?

?I consider that the situation in India is much better than the rest of the world, However, the worldwide high inflation at this time is totally understandable- a medium-term imbalance that will correct itself as soon as the demand and supply balance is approached. So, should we really worry about inflation too much. This is because expecting the perfect equilibrium of supply and demand is like wishing for “utopia”? But the hard reality is that in today’s times ‘chaos’ is the new normal.

?Can we readjust the target inflation rate considering the ‘realties’ of the world at that time. I sincerely believe that there can be no ‘one rule’ fit for all ‘situations’. Can we rather target 10% inflation as new normal instead of 4% for the next 2-3 years but targeting growth rate of 15% instead of 7%. We may need to think dynamic instead of static.

?Why should we really focus on “growth”? Because you should always focus on your biggest opportunities not your biggest problems.

?Growth is all about sentiments. Right now, the sentiments are positive. Everyone believes that next 2 decades are of India. Let’s not dampen the sentiments anyhow.

?The more money in the hands of people results in enhancing positive “sentiments”. Then with policy visibility and consistency results in increase consumption. The long-term confidence makes you take bold investment decisions. This side of the economic cycle is called “growth” phase.

?A businessman will be discouraged to take a long-term capital investment decision if the cost of funds is volatile. It might also impact the viability of the certain projects. We should encourage long term investments by businesses and enhanced lending by financial institutions.