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1373 Points
Joined January 2012
tejesvi kasturi is right. You cannot allow too much cash in circulation and if too much cash in the hands of banks they will lend or invest that will cause stagflation that is rihjt fear of RBI. RBI need not heed what govt says but it is a constitutional independent body to manage money.
It uses its wisdom in controlling inflation and that may affect growth of economy still it is ok in the short time may be 6 months as economy is weak to absorb the inflation.
instruments need to work macro economy and not just export and import alone.
india has very high debt due to import of gold for re-export back as also domestic consumption, even Dr.Rangaraan admitted our deficit is equal to gold imports that is tottering economy.
so RBI is right authority to handle the banks and lending and borrowing rates plus RBI may issue bonds to absorb excess money in circulationunder free market operations.