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Does monetary policy really work?

By targeting aggregate demand across the whole economy, monetary policy may be too blunt an instrument to tackle the ongoing inflationary pressures in the economy, instead adding to the already chronic high unemployment rates in the country 

August 05, 2022 / 01:11 PM IST
Does monetary policy really work?

The Reserve Bank of India has just announced a 50 bps or 0.5% hike in repo rates to 5.4% as a measure to control inflation, which is presently above its target level.  The transmission mechanism of monetary policy is simple: increased repo rates would mean that commercial banks can access reserve money from the Reserve Bank of India for interbank settlements at higher rates and would therefore charge the final borrowers including households and businesses higher rates of interest...

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